SECURITIES AND EXCHANGE COMMISSION
FORM S-1/A General form of registration statement for all companies including face-amount certificate companies [amend]
Filing Date: 1999-04-08 SEC Accession No. 0000950109-99-001338
(HTML Version on secdatabase.com)
FILER LITRONIC INC Mailing Address Business Address 2030 MAIN STREET SUITE 2030 MAIN STREET SUITE CIK:1078717| IRS No.: 330757190 | State of Incorp.:DE | Fiscal Year End: 1231 1250 1250 Type: S-1/A | Act: 33 | File No.: 333-72151 | Film No.: 99589265 IRVINE CA 92614 IRVINE CA 92614 SIC: 3577 Computer peripheral equipment, nec 9498511085
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document As filed with the Securities and Exchange Commission on April 8, 1999 Registration No. 333-72151 ------
Securities and Exchange Commission Washington, D.C. 20549 ______
Amendment No. 1 to Form S-1 Registration Statement Under The Securities Act of 1933 ______
Litronic Inc.
(Exact name of registrant as specified in its charter)
Litronic Inc. 2030 Main Street, Suite 1250 Irvine, California 92614 (949) 851-1085
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ______
Kris Shah Chief Executive Officer and Chairman of the Board Litronic Inc. 2030 Main Street, Suite 1250 Irvine, California 92614 (949) 851-1085
(Name, address, including zip code, and telephone number, including area code, of agent for service) ______
Copies to:
Arent Fox Kintner Plotkin & Kahn, PLLC Tenzer Greenblatt LLP 1050 Connecticut Avenue, N.W. 405 Lexington Avenue Washington, D.C. 20036-5339 New York, New York 10017 Attention: Gerald P. McCartin, Esq. Attention: Robert J. Mittman, Esq. Telephone No.: (202) 857-6090 Telephone No.: (212) 885-5000 Facsimile No.: (202) 857-6395 Facsimile No.: (212) 885-5001
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Approximate date of commencement of proposed sale to public: As soon as practicable after this registration statement becomes effective.
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If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] ______
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] ______
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document for the same offering. [_] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_]
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.
[The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.]
SUBJECT TO COMPLETION
dated April 8, 1999
LITRONIC INC.
3,000,000 shares of common stock
This is an initial public offering of 3,000,000 shares of the common stock of Litronic Inc. We expect that the initial public offering price will be between $9.00 and $11.00 per share. We anticipate that our common stock will be listed on the Nasdaq National Market under the symbol "LTNX."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 14. ______
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted BlueStone Capital Partners, L.P. and Pacific Crest Securities Inc., the representatives of the underwriters, a 45-day option to purchase up to 450,000 additional shares of our common stock to cover any over- allotments.
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BLUESTONE CAPITAL PARTNERS, L.P. PACIFIC CREST SECURITIES INC.
, 1999
We own or otherwise have rights to trademarks and trade names that we use in conjunction with the sale and licensing of our products. The following trademarks mentioned in this prospectus are our registered trademarks: ProFile Manager, NetSign, NetSign Pro, CryptOS, CryptOS SDK, CryptOS SDK+, ARGUS, Moniker, CryptoCard, CipherServer and Forte. We also own the trade names Litronic, Pulsar, Pulsar Data and Pulsar Data Systems, Inc. We have applied for the trademarks Forte PKIcard and Maestro. All other trademarks or trade names referred to in this prospectus are the property of their respective owners.
PROSPECTUS SUMMARY
This is a summary of the information contained in this prospectus. To
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document understand this offering fully, you should read the entire prospectus, especially the risk factors and financial statements.
As of the date of this prospectus, all of the stockholders of Litronic Industries, Inc. will exchange all of the outstanding common stock of that company for all of the outstanding common stock of Litronic Inc. Upon the closing of this offering, the newly reorganized Litronic Inc. will acquire all of the outstanding common stock of Pulsar Data Systems, Inc.
In this prospectus, unless the context indicates otherwise, the term "Litronic" refers to Litronic Inc. and its subsidiaries, after giving effect to its reorganization with Litronic Industries, Inc., and the terms "we," "our" or "our company" refer to Litronic Inc. and its subsidiaries after giving effect to both its reorganization with Litronic Industries, Inc. and its acquisition of Pulsar.
The historical financials for Litronic in this prospectus have been retroactively adjusted to reflect the reorganization. Since Litronic Inc. has had no operations of its own, the information presented in those financials, other than the capital structure, relates solely to Litronic Industries, Inc. The pro forma financial data in this prospectus has been prepared to illustrate the effect of the Pulsar acquisition and this offering on data derived from Litronic's historical financials.
OUR COMPANY
OUR BUSINESS
Litronic provides professional Internet data security services and develops and markets software and microprocessor-based products needed to secure electronic commerce and communications over the Internet and other communications networks based on Internet protocols. To increase sales capacity for its proprietary products and to capitalize on opportunities in the rapidly growing Internet-based information technology security market, Litronic is acquiring Pulsar, a network integration solutions company that develops large- scale network solutions for commercial and government organizations.
OUR PRODUCTS
Our primary data security products use an advanced form of computer security technology referred to as public key infrastructure, or PKI, which is the standard technology for securing Internet-based commerce and communications. As a result, our products enable customers to integrate PKI security into their Internet networks, existing database applications and customized software applications.
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Our data security products can be used with world-wide-web browsers, including Netscape Communicator and Microsoft Internet Explorer, to provide secure E-mail or other data communications and facilitate secure electronic commerce transactions. In addition, our products use digital certificate technology to uniquely identify the sender of an electronic message. Digital certificates can be securely contained in hardware tokens, such as PKI cards and secure-keys, and in software tokens, such as the software security files found in most web browsers. Our products also support numerous types of operating systems and facilitate the process of issuing, managing and recovering digital certificates throughout a customer's enterprise.
In addition, we are currently developing PKI cards that will be capable of integrating multiple digital certificates, provide for greater processing power, versatility and storage capacity than today's conventional PKI cards, and still be credit card sized and competitively priced. Working with Atmel Corporation, a leading semi-conductor manufacturer, we are leading the development of the Forte microprocessor. Under a contract with the National Security Agency some of our development efforts for this project are being reimbursed. We are designing this 32-bit RISC microprocessor to be embeded in an advanced PKI card that we are developing. We expect our Forte PKI card to be the fastest, most versatile and most cryptographically advanced PKI card available.
We have also established strategic relationships with other industry leaders who have adopted PKI as a core feature of their secure product offerings, including:
. Netscape Communications Corporation . Microsoft Corporation . VeriSign, Inc. . International Business Machines . RSA Data Security, Inc. Corp. . Atmel Corporation . SCM Microsystems, Inc. . U.S. National Security Agency
OUR CUSTOMERS
Our data security customers come from diverse industries, such as the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document finance, healthcare, telecommunications, electronic commerce and government industries, and include:
. Bank of America . VeriSign, Inc. . Lucent Technologies Inc. . Lockheed Martin Corporation . Deloitte & Touche LLP . Netscape Communications Corporation . the U.S. Army Corps of Engineers . Schlumberger Limited . the National Security Agency . Nippon Telegraph and Telecommunications Data Corporation
In addition, our newly acquired Pulsar client base will include over 100 federal agencies, such as the Executive Offices of the President of the United States, the Federal
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Bureau of Investigation and the Federal Communications Commission, as well as over 40 commercial, state and local customers.
OUR MARKET AND MARKET OPPORTUNITY
The increasing proliferation of, and reliance upon, Internet communications and transactions has caused data security to become a paramount concern. Demand for information security products is forecast by Datamonitor, an independent research firm, to increase from $1.6 billion in 1997 to almost $7.0 billion by 2001, an annual growth rate of 44%. In addition, Datamonitor forecasts the PKI segment to be the fastest growing segment of the Internet security market, with the demand for PKI-based products increasing from $75 million in 1997 to approximately $1.9 billion by 2001, an annual growth rate of 124%.
OUR STRATEGY
We intend to leverage the direct sales force, distribution channels and strategic partners of our new Pulsar operations to aggressively expand our data security distribution capabilities. Pulsar's strategic partners include electronic commerce companies, Internet service providers, value-added resellers, systems integrators and original equipment manufacturers. In addition, we believe that our newly acquired network integration solutions expertise will provide us with significant competitive advantages with respect to our Internet data security offerings, as the implementation of Internet network security solutions and infrastructure requires specialized skills which are typically limited in corporate information technology departments.
To capitalize on the expanding market opportunities in the information security market, we intend to exploit:
. the substantial experience and knowledge of Litronic's existing management team in the Internet data security, computer networking and semi-conductor industries, and
. Pulsar's extensive expertise in the sale and implementation of large- scale networking systems, as well as its significant market access.
OUR POTENTIAL ACQUISITION OF THE ASSURE TECHNOLOGY
Subject to our due diligence review, we expect to enter into an agreement under which we will, after the close of this offering, bid shares of our common stock valued at $6.0 million in a foreclosure sale for the purchase of the proprietary encryption-based information security technology for client/server networks and related intellectual property known as the Assure technology. If our bid is the winning bid, we will seek to complete the development of products based on this technology in order to expand our data security product offerings.
The judgment holders in the foreclosure action hold judgments in the aggregate amount of approximately $6.0 million. Included among these judgment holders are
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affiliates of BlueStone, who hold judgments aggregating approximately $750,000, including a judgment in the amount of approximately $150,000 held by Anthony Giraudo, a director nominee of our company and a limited partner of BlueStone. If our bid is the winning bid at the foreclosure sale, all of the judgment holders, including the BlueStone affiliates, will receive their proportionate percentage of the shares of our common stock included in the bid. See "Certain Transactions."
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Litronic Inc. was incorporated under the laws of the State of Delaware in 1997 but has conducted no operations to date. Its predecessor, Litronic
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Industries, Inc., was incorporated under the laws of the State of California in 1970. Our principal executive offices are located at 2030 Main Street, Suite 1250, Irvine, California 92614, and our telephone number is (949) 851-1085. We also maintain executive offices in Lanham, Maryland. Our website is located at www.litronic.com. Information contained in our website is not part of this prospectus.
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THE OFFERING
Common stock offered by Litronic...... 3,000,000 shares
Common stock to be outstanding after this offering...... 9,040,631 shares, including 2,169,938 shares to be issued in connection with the Pulsar acquisition. This does not include:
. 281,419 shares reserved for issuance upon exercise of options granted under our 1998 stock option plan;
. an aggregate of 600,000 shares reserved for issuance upon exercise of options available for future grant under our 1999 stock option plan;
. 300,000 shares reserved for issuance upon exercise of warrants to be issued upon the closing of this offering to BlueStone and Pacific Crest for serving as the representatives of the underwriters; and
. shares which will be issued if our bid in the foreclosure sale for the Assure technology is successful.
Use of proceeds...... We intend to use the net proceeds of this offering for reduction of debt, sales and marketing, product development and working capital and general corporate purposes.
Risk factors...... Investing in our common stock involves a high degree of risk and immediate and substantial dilution. Proposed Nasdaq National Market symbol...... LTNX
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SUMMARY FINANCIAL INFORMATION LITRONIC (DOLLARS IN THOUSANDS)
The following table presents summary financial information for Litronic for the periods, and as of the dates, indicated. The data is derived from, and should be read in conjunction with, the consolidated financial statements of Litronic, including the related notes, appearing elsewhere in this prospectus. The information presented below is qualified in its entirety by, and should be read in conjunction with, "Selected Financial Data-Litronic," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Litronic and related notes included elsewhere in this prospectus.
STATEMENTS OF OPERATIONS INFORMATION:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document
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BALANCE SHEET INFORMATION:
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SUMMARY FINANCIAL INFORMATION PULSAR (DOLLARS IN THOUSANDS)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The following table presents summary financial information for Pulsar for the periods, and as of the dates, indicated. The data is derived from, and should be read in conjunction with, the financial statements of Pulsar, including the related notes, appearing elsewhere in this prospectus. The information presented below is qualified in its entirety by, and should be read in conjunction with, "Selected Financial Data-Pulsar," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements of Pulsar and related notes included elsewhere in this prospectus.
STATEMENTS OF OPERATIONS INFORMATION:
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BALANCE SHEET INFORMATION:
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SUMMARY PRO FORMA FINANCIAL INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents unaudited summary pro forma financial
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document information for the periods, and as of the dates, indicated. This information is based on data derived from the historical financial statements of Litronic and Pulsar and has been prepared to illustrate the effects of the Pulsar acquisition and this offering on that data, as if they had occurred as of January 1, 1998, with respect to the statements of operations information, and as of December 31, 1998, with respect to the balance sheet information. This financial information is provided for comparative purposes only and is not intended to reflect the results that actually would have been obtained if the acquisition and this offering had been effected on the dates indicated. The information presented below is qualified in its entirety by, and should be read in conjunction with, "Pro Forma Financial Data," "Selected Financial Data-Litronic," "Selected Financial Data-Pulsar," "Management's Discussion and Analysis of Financial Condition and Result of Operations" and the financial statements and related notes included elsewhere in this prospectus.
PRO FORMA STATEMENTS OF OPERATIONS INFORMATION:
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PRO FORMA BALANCE SHEET INFORMATION:
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RISK FACTORS
An investment in our common stock is speculative and involves a high degree of risk. In addition to the other information in this prospectus, you should carefully consider the following risk factors in evaluating our company and our prospects before purchasing shares of our common stock.
WE HAVE A HISTORY OF LOSSES AND MAY INCUR FUTURE LOSSES.
Even with the proceeds of this offering, we may not become profitable or significantly increase our revenue. Litronic incurred a net loss of $1.4 million for the year ended December 31, 1998. Pulsar incurred net losses of $7.4 million for the year ended December 31, 1998 and $11.0 million for the year ended December 31, 1997. Our pro forma combined statement of operations reflects a net loss of $10.4 million for the year ended December 31, 1998.
PULSAR'S INDEPENDENT AUDITORS HAVE EXPRESSED DOUBT ABOUT PULSAR'S ABILITY TO CONTINUE AS A GOING CONCERN.
For the year ended December 31, 1998, Pulsar's independent auditors noted in their report that as a result of Pulsar's loss, its net capital deficiency and its default on financing agreement debt covenants, there was a substantial doubt about Pulsar's ability to continue as a going concern. After this offering, we will have positive working capital and be in compliance with all financing debt agreements. We believe working capital, including proceeds from this offering, and available borrowings under credit facilities will be sufficient to satisfy our cash flow requirements for at least the 12 months following this offering.
OUR INABILITY TO INTEGRATE, OR IMPLEMENT OUR PLANS FOR, THE OPERATIONS OF PULSAR MAY ADVERSELY AFFECT OUR BUSINESS.
Integration of the Pulsar acquisition may place strain on our managerial and financial resources, which could, in turn, adversely affect our business. To achieve the full benefits of the Pulsar acquisition, we will need to:
. integrate our administrative, financial and engineering resources; . coordinate our marketing and sales efforts; and . implement appropriate operational, financial and management systems and controls.
We may not be able to successfully integrate Pulsar's operations. In addition, we are acquiring Pulsar assuming that we can roll out our enterprise-wide data security products to Pulsar's existing client base, successfully complete the implementation of Pulsar's recent shift in product reselling focus, expand Pulsar's professional service offerings and increase sales of Pulsar's products and professional services to commercial customers and state and local governments. We may not be able to successfully implement any of these plans. Our
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failure to do so would significantly diminish the value of the Pulsar acquisition and adversely affect our future operations.
THE GOODWILL AND OTHER INTANGIBLES ACQUIRED IN THE PULSAR ACQUISITION MAY HAVE AN ADVERSE IMPACT ON OUR OPERATING RESULTS AND THE MARKET PRICE OF OUR COMMON STOCK.
Approximately $32.2 million, or 53%, of our pro forma combined, as adjusted, assets as of December 31, 1998, consisted of intangible assets, including goodwill, arising from the acquisition of Pulsar. This amount, which will be amortized over 15 years, constitutes a non-cash expense in each amortization period, which is not deductible for tax purposes, that will reduce net income or increase net loss for that period. The reduction in our net earnings or an increase in our net loss resulting from the amortization of goodwill and other intangibles may have an adverse impact on our operating results and the market price of our common stock. There is also a risk that we may never realize the value of our intangible assets.
A DEFAULT UNDER OUR SECURED CREDIT ARRANGEMENTS COULD RESULT IN A FORECLOSURE OF OUR ASSETS BY OUR CREDITORS.
All of our assets are pledged as collateral to secure portions of our debt. As of December 31, 1998, Litronic had $5.8 million and Pulsar had $13.6 million in outstanding secured debt. We expect to enter into a new $20.0 million credit
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document facility following this offering which will also be secured by a pledge of all of our assets. This means that if we default on our secured debt obligations the lenders could foreclose on our assets. From time to time we have been in violation of financial covenants under our existing credit arrangements and have received either waivers for these violations or forbearance agreements through the date of this prospectus. Although we expect to be in compliance with all of our financial covenants upon the closing of this offering, if we fail to comply with our secured debt loan covenants or otherwise default on our obligations in the future without obtaining waivers or forbearance agreements for these violations, our indebtedness could become immediately due and payable and the lenders could foreclose on our assets.
THE TERMS OF OUR LOAN AGREEMENTS COULD LIMIT OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY.
The terms of our loan agreements with our credit providers could limit our ability to implement our strategy. In addition to substantially prohibiting us from incurring additional indebtedness, our loan agreements with these creditors generally limit or prohibit us from:
. declaring or paying cash dividends; . making capital distributions or other payments to stockholders; . merging or consolidating with another corporation; or . selling all or substantially all of our assets.
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WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS AND, THEREFORE, THE LOSS OF EVEN ONE OF THESE CUSTOMERS COULD SIGNIFICANTLY AND NEGATIVELY IMPACT OUR OPERATING RESULTS.
We depend on a limited number of customers for a substantial portion of our revenue and many of our contracts with our significant customers are short-term contracts. For the year ended December 31, 1998, Litronic derived 81% of its revenue from three customers and Pulsar derived 23% of its revenue from one customer. The nonrenewal of any significant contract upon expiration or, a substantial reduction in sales to any of our significant customers, would adversely affect our business unless we were able to replace the revenue we received from these customers. We expect to continue to depend upon a limited number of large customers for a substantial portion of our revenue.
DOING BUSINESS WITH THE U.S. GOVERNMENT ENTAILS MANY RISKS WHICH COULD ADVERSELY AFFECT US.
Sales to U.S. government agencies accounted for 90% of our pro forma combined revenue for the year ended December 31, 1998. Our sales to these agencies are subject to risks, including:
. potential reduction in the federal funding available for them to purchase our products and services;
. early termination of our contracts;
. disallowance of costs upon audit;
. changes in the government contract procurement process; and
. the necessity to participate in competitive bidding and proposal processes.
In addition, the government may be in a position to obtain greater rights with respect to our intellectual property than we would grant to other entities. Government agencies also have the power, based on financial difficulties or investigations of its contractors, to deem contractors unsuitable for new contract awards. Because we engage in the government contracting business, we have been and will be subject to audits and may be subject to investigation by governmental entities. Failure to comply with the terms of any of our governmental contracts could result in substantial civil and criminal fines and penalties, as well as our suspension from future government contracts for a significant period of time, any of which could adversely affect our business.
IF USE OF THE INTERNET AND OTHER COMMUNICATIONS NETWORKS BASED ON INTERNET PROTOCOLS DOES NOT CONTINUE TO GROW, DEMAND FOR OUR PRODUCTS MAY NOT INCREASE.
Increased demand for our products depends in large part on the continued growth of the Internet and Internet protocol-based networks and the widespread acceptance and use
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of these mediums for electronic commerce and communications. Because electronic commerce and communications over these networks are evolving, we cannot predict the size of the market and its sustainable growth rate. A number of factors may affect market size and growth rate, including:
. the use of electronic commerce and communications may not increase, or may increase more slowly than we expect, as a result of the cost of the infrastructure required to support its widespread use;
. the Internet may continue to experience significant growth both in the number of users and the level of use, but the Internet infrastructure may not be able to continue to support the demands placed on it by continued growth;
. continued growth may affect the Internet's performance and reliability;
. the growth and reliability of electronic commerce and communications could be harmed by delays in development or adoption of new standards and protocols to handle increased levels of activity or by increased governmental regulation; and
. changes in, or insufficient availability of, communications services to support electronic commerce and communication could result in poor performance and also adversely affect usage.
THERE ARE RISKS RELATING TO OUR OFFER TO PURCHASE THE ASSURE TECHNOLOGY.
Although we expect, subject to our due diligence review, to enter into an agreement under which we will agree to bid at least $6.0 million of our common stock to purchase the Assure technology, we do not, at this time, know how many shares we will have to include in our bid because we cannot be certain at what price our common stock will be trading during the five-day measurement period prior to the foreclosure sale. Based on the initial public offering price and assuming an initial public offering price of $10.00 per share, our bid would consist of at least 600,000 shares of our common stock. However, if, at the time of our bid, the average closing price of our common stock on Nasdaq during the measurement period is below the initial public offering price, we will have to bid more shares. In addition, regardless of the number of shares which are included in our bid, our bid for the Assure technology may not be the winning bid in the foreclosure sale and, thus, we may not be able to acquire the technology.
In addition, even if we successfully acquire the Assure technology, our failure to upgrade the technology and complete the development of products based on the technology would adversely affect our business. Our development efforts will be subject to many risks, including:
. we were not involved in the initial development of the technology and will need to devote financial and personal resources to become familiar with the technology;
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. we may not become sufficiently familiar with the technology to upgrade the technology or develop products based on the technology in a cost effective or timely manner, or at all;
. we may face technical problems or other difficulties or other significant delays; and
. in addition to the stock we would issue if our bid was the winning bid, we have allocated $1.2 million of the net proceeds of this offering to the development of Assure-based products and we may expend this and significant additional resources without ever successfully developing a commercial product.
In addition, there may be an adverse impact on our operating results due to in-process research and development charges and/or amortization of assets related to the purchase of the Assure technology. See "Certain Transactions."
SOME OF OUR PRODUCTS AND SERVICES HAVE LENGTHY SALES AND IMPLEMENTATION CYCLES WHICH, IF DELAYED, COULD ADVERSELY AFFECT FORECASTED OPERATING RESULTS.
Evaluating customers' data security needs and designing and implementing custom networks typically requires significant expenditure of time, capital and other resources. Customers' purchasing decisions for our products and systems may be subject to delay due to many factors not within our control, such as the significant expense of many data security products and network systems, customers' internal budgeting process, year 2000 concerns and the other procedures customers may require for the approval of large purchases. Further, the implementation process is subject to delays resulting from administrative concerns associated with incorporating new technologies into existing networks,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document deployment of a new network system and data migration to the new system. The sales and implementation cycles associated with our product sales and network design and implementation activities can, as a result, be lengthy, potentially lasting from 45 to 90 days. Our quarterly and annual operating results could be adversely affected if sales forecasted for a particular quarter from a particular customer are delayed.
IF PKI TECHNOLOGY IS COMPROMISED, OUR BUSINESS WOULD BE ADVERSELY AFFECTED.
Many of our products are based on PKI technology, which involves the use of a public key and a private key to encrypt and decrypt messages. The security afforded by this technology depends on the integrity of a user's private key, which depends in part on the application of algorithms, or advanced mathematical factoring equations. This integrity is based on the premise that factoring large numbers into their prime number components is difficult. The occurrence of any of the following could result in a decline in demand for our data security products:
. development of an easy factoring method would reduce or eliminate security of encryption products using PKI technology;
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. any significant advance in techniques for attacking PKI systems could render some or all of our products based on cryptographic technology obsolete or unmarketable;
. computer systems significantly faster and more powerful than those presently available could theoretically solve factoring problems even without a breakthrough in factoring or other methods of attacking PKI systems;
. publicity of the successful decoding of cryptographic messages or the misappropriation of private keys, as has happened in the past, could adversely affect public perception as to the safety of PKI technology; and
. current or future government regulation regarding the use, scope and strength of PKI could limit our ability to develop and sell products with encryption technology strong enough to maintain the integrity of a user's private key against factoring by more powerful computer systems.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS AND SERVICE OFFERINGS COULD BECOME OBSOLETE.
The markets we serve are characterized by rapidly changing technology, emerging industry standards and frequent introduction of new products. The introduction of products embodying new technologies and the emergence of new industry standards may render our products obsolete or less marketable. The process of developing our products and services is extremely complex and requires significant continuing development efforts. If we are unable to modify existing products and develop new products that are responsive to changing technology and standards and meet customer needs in a timely and cost effective manner, our business could be adversely affected.
IF WE FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS, OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS WOULD BE ADVERSELY AFFECTED.
The loss of any of our existing strategic relationships, or our inability to create new strategic relationships in the future, could adversely affect our ability to develop and market our products. We depend upon our partners to develop and market products and to fund and otherwise perform their obligations as contemplated by our agreements with them. We do not control the time and resources devoted by our partners to these activities. These relationships may not continue or may require us to spend significant financial, personnel and administrative resources from time to time. We may not have the resources available to satisfy our commitments, which may adversely affect our strategic relationships. Further, our products and services may compete with the products and services of our strategic partners. This competition may adversely affect our relationships with our strategic partners, which could adversely affect our business.
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WE DEPEND ON KEY MANAGEMENT PERSONNEL.
Our success will depend largely on the continuing efforts of our executive officers and senior management, especially those of Kris Shah, our chairman of the board and chief executive officer, and William W. Davis, Sr., our president
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and chief operating officer. Our business may be adversely affected if the services of any of our key personnel become unavailable to our company. We have not entered into employment agreements with any employees other than Messrs. Shah and Davis, and even with these agreements there is a risk that these individuals will not continue to serve for any particular period of time. While we intend to obtain key person life insurance policies on the lives of Messrs. Shah and Davis, each in the amount of $3.0 million, these amounts may not be sufficient to offset the loss of their services.
THERE IS SIGNIFICANT COMPETITION IN OUR INDUSTRY FOR HIGHLY SKILLED EMPLOYEES AND OUR FAILURE TO ATTRACT AND RETAIN TECHNICAL PERSONNEL WOULD ADVERSELY AFFECT OUR BUSINESS.
We may not be able to successfully attract or retain highly skilled employees. Our inability to hire or retain highly qualified individuals may impede our ability to develop, install, implement and otherwise service our software and hardware systems, customers and potential customers or otherwise efficiently conduct our operations, all of which may adversely affect our business. The data security and networking solution industries are characterized by a high level of employee mobility, and the market for highly qualified individuals in the computer-related fields is intense. This competition means there are fewer highly qualified employees available to hire, the costs of hiring and retaining these individuals are high and these personnel may not remain with our company once hired. Furthermore, there is increasing pressure to provide technical employees with stock options and other equity interests in our company, which may dilute earnings per share.
POTENTIAL PRODUCT DEFECTS COULD SUBJECT US TO CLAIMS FROM CUSTOMERS.
Products as complex as those we offer may contain undetected errors or result in failures when first introduced or when new versions are released. Despite our product testing efforts and testing by current and potential customers, it is possible that errors will be found in new products or enhancements after commencement of commercial shipments. The occurrence of these errors could result in adverse publicity, delay in product introduction, diversion of resources to remedy defects, loss of or a delay in market acceptance or claims by customers against our company, or could cause us to incur additional costs, any of which could adversely affect our business.
WE MAY BE EXPOSED TO POTENTIAL LIABILITY FOR ACTUAL OR PERCEIVED FAILURE TO PROVIDE REQUIRED PRODUCTS OR SERVICES.
Because our customers rely on our products for critical security applications, we may be exposed to potential liability claims for damage caused to an enterprise as a result of an actual or perceived failure of our products. An actual or perceived breach of enterprise network or data security systems of one of our customers, regardless of whether the breach is attributable to our
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products or solutions, could adversely affect the market's perception of our company, products and solutions and therefore our business.
Furthermore, the nature of many of our professional services exposes us to a variety of risks. Many of our professional service engagements involve projects that are critical to the operations of our customers' businesses. Our failure or inability to meet a customer's expectations in the performance of our services, or to do so in the time frame required by the customer, regardless of our responsibility for the failure could
. result in a claim for substantial damages against us by the customer; . discourage customers from engaging us for these services; or . damage our business reputation.
In addition, as a professional services provider, a portion of our business involves employing people and placing them in the workplace of other businesses. Therefore, we are also exposed to liability for actions taken by our employees while on assignment, such as:
. damages caused by employee errors and omissions; . misuse of customer proprietary information; . misappropriation of funds; . discrimination and harassment; . theft of customer property; . other criminal activity or torts; and . other claims.
WE MAY NOT HAVE SUFFICIENT INSURANCE TO COVER POTENTIAL LIABILITIES.
Although we maintain general liability insurance coverage, that insurance may not continue to be available to us on commercially reasonable terms or in sufficient amounts to cover one or more large claims, or the insurer may
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance policies, including premium increases or the imposition of large deductibles or co-insurance requirements, could adversely affect our business.
PROBLEMS RELATING TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS.
We are in the process of surveying our major vendors regarding year 2000 compliance. Until we complete our survey we cannot fully assess the year 2000 status of any of our vendors or suppliers. The failure of our significant vendors and customers to make their products and systems year 2000 compliant may adversely affect the performance of our products, which may in turn adversely affect our business. It is possible that customers or third parties might seek indemnification or damages from us as a result of year 2000 issue-related errors caused by or not prevented by our products of services. We cannot predict the extent to which we might be liable for these costs, but it is conceivable in general that year 2000
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errors could result in substantial judgments against providers of information technology such as our company. If we were to suffer an adverse judgment as a result of prior year 2000 noncompliance of our products, it may have an adverse impact on our business.
Customers' purchasing decisions could be affected by the year 2000 issue as they may need to expend significant resources to correct their existing systems. This situation may result in reduced funds available to implement the infrastructure needed to conduct trusted and secure electronic commerce and communications over the Internet, intranets and extranets. These factors could lead to a decline in sales of our products and services, which could, in turn, adversely affect our business.
The extent of the potential impact of the year 2000 issue generally is not known, and we cannot predict the likelihood that the year 2000 issue will cause a significant disruption in the economy as a whole.
OUR PARTICIPATION IN COMPETITIVE BIDDING FOR CONTRACTS EXPOSES US TO THE POTENTIAL LOSS OF FINANCIAL AND OTHER RESOURCES.
We generate a portion of our revenue from contracts and purchase orders awarded through the competitive bidding process. Our bids may not be accepted or, if accepted, awarded contracts may not generate sufficient revenue to result in profitable operations. The competitive bidding process is typically lengthy and often results in the expenditure of financial and other resources in connection with bids that are not accepted. Additionally, inherent in the competitive bidding process is the risk that our costs may exceed projected costs upon which a submitted bid or contract price is based.
WE FACE INTENSE COMPETITION FROM A NUMBER OF SOURCES.
The markets for our products and services are intensely competitive and, as a result, we face significant competition from a number of different sources. We may be unable to compete successfully as many of our competitors are more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than we have. In addition, there are several smaller and start-up companies with which we compete from time to time. We also expect that competition will increase as a result of consolidation in the information security technology and product reseller industries.
THIRD PARTIES COULD OBTAIN ACCESS TO OUR PROPRIETARY INFORMATION OR INDEPENDENTLY DEVELOP SIMILAR TECHNOLOGIES BECAUSE OF THE LIMITED PROTECTION FOR OUR INTELLECTUAL PROPERTY.
Notwithstanding the precautions we take, third parties may copy or otherwise obtain and use our proprietary technologies, ideas, know-how and other proprietary information without authorization or independently develop technologies similar or superior to our technologies. In addition, the confidentiality and non-competition agreements between us and our employees, distributors, and clients may not provide meaningful protection
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of our proprietary technologies or other intellectual property in the event of unauthorized use or disclosure. Policing unauthorized use of our technologies and other intellectual property is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. Furthermore, the laws of other jurisdictions may afford little or no effective protection of our intellectual
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document property rights. Our business, financial condition and operating results could be adversely affected if we are unable to protect our intellectual property rights.
WE MAY FACE CLAIMS OF INFRINGEMENT OF PROPRIETARY RIGHTS.
There is a risk that our products infringe the proprietary rights of third parties. While we do not believe that our products infringe on proprietary rights of third parties, infringement or invalidity claims may nevertheless be asserted or prosecuted against us and our products may be found to have infringed the rights of third parties. If any claims or actions are asserted against us, we may be required to modify our products or may seek to obtain a license for these intellectual property rights in a timely manner. We may not be able to modify our products or obtain a license on commercially reasonable terms, or at all. Our failure to do so could adversely affect our business.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY CURRENT AND POSSIBLE FUTURE GOVERNMENT REGULATION.
As a result of government regulation of our products, we may be at a disadvantage in competing for international sales compared to foreign companies that are not subject to these restrictions. This could adversely affect our business. Because we sell our products internationally, we must comply with federal laws regulating the export of, and applicable foreign government laws regulating the import of, our products. Although we have obtained approval to export our NetSign and ProFile Manager products, the federal government may rescind this approval at any time. Additionally, we may apply for export approval, on a specific criteria basis, for our future products. We may not receive approval to export any future products on a timely basis, on the basis we request or at all.
OUR OPERATIONS COULD SUBJECT US TO TAXATION IN UNFORSEEN JURISDICTIONS.
Many companies conducting electronic commerce do not collect sales or other similar taxes with respect to shipments of goods into other states or foreign countries. It is possible that federal, state or foreign governments may seek to impose sales taxes on companies that engage in electronic commerce. Due to the increasing popularity of the Internet, intranets and extranets, it is possible that laws and regulations may be enacted covering issues such as user privacy, pricing, content and quality of products and services. Widespread adoption of laws and regulations of this type or the imposition of sales or other taxes on electronic commerce could slow substantially the growth of the Internet, intranets and extranets, which could result in decreased demand for our products and adversely affect our business.
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OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Our quarterly operating results may fluctuate significantly as a result of a variety of factors, many of which are outside our control. These factors include:
. the short-term or long-term nature of customer commitments;
. the length of the sales and implementation cycle for our products and services;
. patterns of information technology spending by customers;
. the timing, size, mix and customer acceptance of our product and service product offerings and those of our competitors;
. the timing and magnitude of required capital expenditures;
. the need to use outside contractors to complete some assignments; and
. general economic conditions.
Accordingly, comparisons of quarterly results may not be meaningful and should not be relied upon, nor will they necessarily reflect on future performance. Because of the foregoing factors, it is likely that in some future quarters our operating results will be below the expectations of public market analysts and investors. If this were to happen, the price of our common stock would likely be adversely affected.
OUR EFFORTS TO EXPAND INTERNATIONAL OPERATIONS ARE SUBJECT TO A NUMBER OF RISKS.
We are seeking to increase international sales which are not currently material to our business. While we believe our current products and services are designed to meet the regulatory standards of foreign markets, our inability to maintain or to obtain foreign regulatory approvals on a timely basis in the future could adversely affect our business. Additionally, our international
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document operations could be subject to a number of risks, any of which could adversely affect our business, including:
. establishing or maintaining international distribution channels; . increased collection risks; . trade restrictions; . export duties and tariffs; and . uncertain political, regulatory and economic developments.
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OUR ABILITY TO PRODUCE THE FORTE PKICARD ON A TIMELY AND COST-EFFECTIVE BASIS DEPENDS ON THE AVAILABILITY OF A COMPUTER CHIP FROM ATMEL, WITH WHOM WE DO NOT EXPECT TO MAINTAIN A SUPPLY AGREEMENT.
Any inability to receive adequate supplies of Atmel Corporation's specially designed Forte microprocessor would adversely affect our ability to complete and sell the Forte PKIcard. We do not anticipate maintaining a supply agreement with Atmel Corporation for the Forte microprocessor. If Atmel were unable to deliver the Forte microprocessor for a lengthy period of time or terminated its relationship with us, we would be unable to produce the Forte PKIcard until we could design a replacement computer chip for the Forte microprocessor. We anticipate this would take substantial time and resources to complete.
AFTER THIS OFFERING, A SMALL NUMBER OF STOCKHOLDERS, INCLUDING OFFICERS AND DIRECTORS, WILL HAVE THE ABILITY TO CONTROL STOCKHOLDER VOTES.
Upon the closing of this offering, Kris Shah and members of his family, William W. Davis, Sr. and Lillian A. Davis will beneficially own, in the aggregate, approximately 66.8% of our outstanding common stock. These stockholders, if acting together, would have the ability to elect our directors and to determine the outcome of corporate actions requiring stockholder approval, irrespective of how other stockholders may vote. This concentration of ownership may also have the effect of delaying or preventing a change in control.
A SIGNIFICANT PORTION OF THE PROCEEDS OF THIS OFFERING WILL BE USED TO REPAY INDEBTEDNESS AND THUS WILL BE UNAVAILABLE TO FUND FUTURE GROWTH.
We have allocated $12,500,000 (48.7%) of the net proceeds of this offering to repay outstanding indebtedness, including approximately $6.2 million of indebtedness assumed in connection with the acquisition of Pulsar. Consequently, these funds will not be available to fund future growth. All of this indebtedness is personally guaranteed by, and/or secured by pledges of assets of, Kris Shah, William Davis or Lillian Davis. These persons will receive a benefit from the release of these guarantees and security pledges.
THERE ARE LAWSUITS PENDING AGAINST PULSAR WHICH COULD ADVERSELY AFFECT OUR BUSINESS IF THEY ARE RESOLVED AGAINST PULSAR.
Lawsuits are pending against Pulsar claiming (a) damages of approximately $10.3 million resulting from Pulsar's alleged breach of a contract for government contract bid preparation services and (b) unspecified damages resulting from alleged race and age discrimination in connection with the termination of a Pulsar employee. While Pulsar believes these lawsuits are without merit, if these lawsuits were resolved against Pulsar, our business and financial condition could be materially adversely affected. See "Business -- Legal Proceedings."
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND THE OFFERING PRICE HAS BEEN ARBITRARILY DETERMINED.
Before this offering there has been no public market for our common stock. There may not be an active trading market for our common stock after the offering. The initial public offering price has been determined by negotiations between our management and the representatives of the underwriters and does not necessarily reflect the assets, book value or potential earnings of our company or any other recognized criteria of value. Additionally, investors may not be able to resell their shares at or above the initial public offering price.
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OUR STOCK PRICE COULD BE EXTREMELY VOLATILE.
The trading price of our common stock may be highly volatile as a result of factors specific to us or applicable to our market and industry in general. These factors, include:
. variations in our annual or quarterly financial results or those of our competitors;
. changes by financial research analysts in their recommendations or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document estimates of our earnings;
. conditions in the economy in general or in the information technology service sector in particular;
. announcements of technological innovations or new products or services by us or our competitors; and
. unfavorable publicity or changes in applicable laws and regulations (or their judicial or administrative interpretations) affecting us or the information technology service sectors.
In addition, the stock market has recently been subject to extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company's securities, some companies have been sued by their stockholders. If we were sued, it could result in substantial costs and a diversion of management's attention and resources, which could adversely affect our business.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
Our certificate of incorporation and bylaws contain provisions that may deter a takeover or a change in control not approved by our board of directors or otherwise adversely affect the price of our common stock, including:
. authority of our board of directors to issue common stock and preferred stock and to determine the price, rights, including voting rights, preferences, privileges and restrictions of each series of preferred stock, without any vote or action by our stockholders;
. the existence of large amounts of authorized but unissued common stock and preferred stock;
. staggered, three-year terms for our board of directors;
. limitations on who may call special meetings of stockholders;
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. prohibition of stockholders' action by written consent; and
. advance notice requirements for board of directors nominating and stockholder proposals.
The rights and preferences of any series of preferred stock could include a preference over our common stock on the distribution of the assets upon a liquidation or sale of our company, preferential dividends, redemption rights, the right to elect one or more directors and other voting rights. The rights of the holders of any series of preferred stock that may be issued in the future may adversely affect the rights of the holders of our common stock. In addition, provisions of Delaware law may discourage, delay or prevent a change in control or unsolicited acquisition proposals.
PURCHASERS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF THEIR INVESTMENT.
Purchasers of common stock in this offering will pay a price per share which substantially exceeds the per share value of our assets after subtracting our liabilities. In addition, purchasers of common stock in this offering will have contributed 48% of the aggregate price paid by all purchasers of our stock but will own only 33% of the common stock outstanding after this offering.
THE NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE AND THE EXISTENCE OF REGISTRATION RIGHTS COULD DEPRESS THE MARKET FOR OUR COMMON STOCK.
The possibility that a substantial number of additional shares of common stock may become tradeable in the public market following this offering may adversely affect prevailing market prices for our common stock and could impair our ability to raise capital through the sale of existing securities. An aggregate of 3,870,693 of the 6,040,631 shares currently restricted from trading in the public market will become eligible for sale 90 days following the date of this prospectus, subject to agreements with BlueStone restricting their sale for periods of at least six months. We cannot predict the effect, if any, that sales of these additional securities or the availability of these additional securities for sale will have on the market prices prevailing from time to time. In addition, the representatives of the underwriters have also been granted registration rights commencing one year from the date of this prospectus providing for the registration under the Securities Act of the securities issuable upon exercise of the representatives' warrants. The exercise of these rights could result in substantial expense to us. Furthermore, if the representatives exercise their registration rights, they will be unable to make
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document a market in our securities for up to nine days before the initial sales of the warrants until the discontinuation of sales. If the representatives cease making a market, the market and market prices for the securities may be adversely affected and the holders of these securities may be unable to sell them.
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FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions and may be identified by the use of words such as "expects," "anticipates," "intends," and "plans" and other similar expressions. Our actual results will differ from those discussed in these statements and you may consider these differences important to your investment decision. Factors that could contribute to these differences include, but are not limited to, those discussed in the "Risk Factors" section and elsewhere in this prospectus. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding market growth. You should not place undue reliance on the forward-looking statements in this prospectus, which speak only as of the date the statement is made.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of common stock in this offering are estimated to be approximately $25.7 million ($29.8 million if the representatives' over-allotment option is exercised in full), assuming an initial public offering price of $10.00 per share (the midpoint of the currently anticipated range of the initial public offering price) and after deducting underwriting discounts and estimated offering expenses. We expect to use the net proceeds approximately as follows:
REDUCTION OF DEBT
We expect to use proceeds to reduce debt as follows:
. $5.9 million to repay BYL Bank Group for anticipated borrowings through the date of this prospectus. This debt bears interest at the annual rate of 6.6% and matures on February 28, 2000, except that it is required to be repaid upon a change of control of our wholly-owned subsidiary, Litronic Industries. It is guaranteed by Kris Shah, our chief executive officer and chairman of the board, and is secured by personal assets pledged by Mr. Shah.
. $4.2 million to repay in full the principal amount of notes to Wilmington Trust Company. The Wilmington Trust Company debt bears interest at the prime rate as in effect from time to time and matures in December 2002. The Wilmington Trust Company debt is personally guaranteed by William W. Davis, Sr., our president and chief operating officer, and Lillian A. Davis, a principal stockholder of our company, and is secured by property pledged by a family member of Mr. Davis.
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. $1.3 million to IBM Global Finance Corporation (IGFC) to reduce the amount outstanding under an asset-based inventory and working capital financing agreement. The financing line bears interest at an annual . rate of prime plus 2.375% and is guaranteed by Mr. Davis and Ms. Davis and is secured by assets pledged by Mr. Davis.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document . $650,000 to pay IGFC under its forbearance agreement with Pulsar which becomes payable upon closing of this offering. The obligation under the forbearance agreement are guaranteed and are secured by Mr. Davis and Ms. Davis and secured by assets pledged by Mr. Davis.
. $450,000 to repay in full a line of credit from Fidelity Funding, Inc. The Fidelity Funding, Inc. debt currently bears interest at an annual rate of prime plus 1.5%, is due on February 28, 2000, and is personally guaranteed by Mr. Shah.
SALES AND MARKETING
We expect to use the proceeds allocated to sales and marketing as follows:
. to expand our sales and marketing efforts, primarily to commercial markets, including hiring approximately 20 additional sales and marketing personnel;
. to open additional sales and support offices;
. to expand our Internet and other advertising efforts;
. to improve our web site; and
. to expand strategic alliances.
PRODUCT DEVELOPMENT
We expect to use the proceeds allocated to product development to pay our estimated costs of software and product development, including compensation and benefits payable to additional software and hardware engineers and developers. Of the proceeds allocated to product development, $1.2 million represents funds allocated to the development of Assure technology-based products. If our bid for the Assure technology is not the winning bid in its foreclosure sale, this $1.2 million will be added to working capital.
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES
We may use a portion of the proceeds for potential acquisitions of technologies, product lines and businesses and to upgrade our existing management information systems and
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supporting information technology equipment. We currently have no commitments, understandings or arrangements with respect to any future acquisitions.
If the representatives of the underwriters exercise their over-allotment option in full, we will realize additional net proceeds of approximately $4.1 million. We would use these proceeds for working capital and general corporate purposes. Pending the uses described above, we intend to invest the net proceeds of this offering in U.S. government securities, short-term certificates of deposit or other short-term, investment grade, interest-bearing securities.
The allocations described above represent our best estimate of the anticipated use of the offering proceeds. Our estimate is based upon our operating plans and our assumptions about research and development progress, general economic conditions and industry factors. If any of these factors change, we may find it necessary or advisable to reallocate our use of proceeds.
In addition to the proceeds of this offering, we expect to obtain a new $20.0 million revolving line of credit facility with Fidelity Funding, Inc. and to borrow under this facility as needed to finance our operations and working capital requirements. We have entered into a letter of intent with Fidelity relating to this new facility and expect to enter into a definitive agreement permitting us to borrow under this facility commencing with the closing of this offering. The letter of intent contemplates a three-year term, subject to one- year renewals at Fidelity's option, an annual interest rate of prime plus .625% and a pledge of all our personal and real property as collateral.
We believe that the net proceeds of this offering, together with anticipated cash flow from operations, availability under our new $20.0 million credit facility and existing cash and cash equivalents, will be sufficient to satisfy our contemplated cash requirements for at least 12 months following the closing of this offering, including planned capital expenditures of $1.0 million. We could be required to seek additional financing, however, if:
. our plans change due to changes in market conditions, competitive factors, progress of our research and development efforts or new opportunities that may become available in the future;
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document . our assumptions change or prove to be inaccurate; or
. the net proceeds of this offering or our cash flows prove to be insufficient to finance our growth strategy.
DIVIDEND POLICY
Before the date of this prospectus, Litronic Industries was an S corporation for federal and California state income tax purposes. As an S corporation, Litronic
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Industries made cash distributions of approximately $18.0 million to its stockholders during the year ended December 31, 1997. We do not anticipate paying cash dividends in the foreseeable future. We intend to retain future earnings for the development and expansion of our business. The declaration and payment of dividends or other distributions is currently prohibited by the terms of financing agreements we have with our lenders and is likely to continue to be restricted for the foreseeable future.
DILUTION
The difference between the initial public offering price per share of common stock and the net tangible book value per share of common stock after the offering constitutes the dilution to new investors. Our net tangible book value per share is calculated by dividing the difference between our total tangible assets and our total liabilities by the number of shares of our common stock outstanding.
At December 31, 1998, the net tangible book value (deficit) of Litronic was $(4.2 million), or $(1.09) per share. After giving retroactive effect to (a) the Pulsar acquisition and (b) Litronic's receipt and anticipated application of the net proceeds from the sale of the 3,000,000 shares of our common stock in this offering, at an assumed price of $10.00 per share, Litronic's as adjusted net tangible book value at December 31, 1998 would have been $11.1 million or $1.23 per share. This represents an immediate increase in net tangible book value of $2.32 per share to existing stockholders and an immediate dilution of $8.77 per share to new investors.
The following table illustrates this per share dilution to new investors:
The following table summarizes, on a pro forma basis, as of December 31, 1998, and giving retroactive effect to the Pulsar acquisition, the differences between the number of shares of common stock purchased from us, the aggregate consideration paid, and the average price per share paid by existing stockholders and new investors purchasing common stock in this offering. In summarizing this information, we have:
. calculated the total consideration paid by existing stockholders based on the historical value of Litronic's common stock and the fair value of the common stock issued in connection with the Pulsar acquisition; and
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. assumed an average price per share of $10.00 for new investors and for the fair value of the common stock issued in connection with the Pulsar acquisition.
The table above assumes the representatives of the underwriters have not exercised their over-allotment option. If this option is exercised in full, the new investors will have paid $34.5 million (based on an assumed offering price of $10.00 per share) for 3,450,000 shares of common stock, representing approximately 51.8% of the total consideration for 36.4% of the total number of shares outstanding. In making the computations in the table, we excluded:
. 281,419 shares of common stock reserved for issuance upon the exercise of outstanding options under our 1998 stock option plan, at an exercise price of $.70 per share;
. 600,000 shares of common stock reserved for issuance upon the exercise of options available for future grant under our 1999 stock option plan; and
. 300,000 shares of common stock reserved for issuance upon the exercise of warrants to be issued to the representatives of the underwriters in connection with this offering.
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CAPITALIZATION (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table presents Litronic's short-term debt and capitalization, as of December 31, 1998, on (a) an historical basis, (b) a pro forma combined basis to reflect the Pulsar acquisition, and (c) a pro forma combined, as adjusted, basis to reflect the anticipated application of the proceeds of sale of 3,000,000 shares of our common stock at an assumed price of $10.00 per share. This table should be read in conjunction with "Use of Proceeds," "Pro Forma Financial Data" and the financial statements, including the related notes, appearing elsewhere in this prospectus.
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THE ABOVE TABLE EXCLUDES THE FOLLOWING SHARES:
. 600,000 shares of common stock reserved for issuance upon exercise of options available for future grant under our 1999 stock option plan;
. 281,419 shares of common stock reserved for issuance upon exercise of options granted under our 1998 stock option plan; and
. 300,000 shares of common stock reserved for issuance upon exercise of the representatives' warrants.
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SELECTED FINANCIAL DATA LITRONIC (DOLLARS IN THOUSANDS)
The following table presents selected financial data as of and for each of the years in the five-year period ended December 31, 1998, derived from the consolidated financial statements of Litronic. The consolidated financial statements of Litronic as of December 31, 1997 and 1998 and for each of the years in the three-year period ended December 31, 1998 have been audited by KPMG LLP, independent certified public accountants. The consolidated financial statements of Litronic as of December 31, 1997 and 1998, and for each of the years in the three-year period ended December 31, 1998, and the related report, are included in this prospectus.
The selected data should be read in conjunction with the consolidated financial statements of Litronic for the three-year period ended December 31, 1998, the related notes and the independent auditors' report, appearing elsewhere in this prospectus.
SELECTED STATEMENTS OF OPERATIONS DATA:
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SELECTED BALANCE SHEET DATA:
During the year ended December 31, 1997, Litronic paid a cash dividend of $9,534 to its shareholders. No other dividends have been paid during the periods presented.
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SELECTED FINANCIAL DATA PULSAR (DOLLARS IN THOUSANDS)
The following table presents selected financial data as of and for each of the years in the four-year period ended December 31, 1997, derived from the financial statements of Pulsar, which have been audited by Keller Bruner & Company, L.L.C., independent certified public accountants. The selected financial data as of and for the year ended December 31,1998 is derived from the financial statements of Pulsar which have been audited by KPMG LLP, independent certified public accountants. The financial statements of Pulsar as of December 31, 1997 and 1998, and for each of the years in the three year period ended December 31, 1998, and the related reports are included elsewhere in this prospectus.
The selected data should be read in conjunction with the financial statements of Pulsar for the three-year period ended December 31, 1998, the related notes and the independent auditors' reports, which contain explanatory paragraphs that state that Pulsar's recurring losses from operations, violation of debt covenants and net capital deficiency raise substantial doubt about the entity's ability to continue as a going concern. The financial statements and the selected data do not include any adjustments that might result from the outcome of this uncertainty.
SELECTED STATEMENT OF OPERATIONS DATA:
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______
* The breakdown of revenue and cost of revenue between services and products is not available for the years ended December 31, 1994 and 1995 because, prior to 1996, Pulsar's accounting system did not track product and service revenue separately. In 1996, Pulsar installed a new accounting system and has since been able to break out product and service revenue.
SELECTED BALANCE SHEET DATA:
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PRO FORMA FINANCIAL DATA
The following pro forma financial data is based upon data derived from Litronic's and Pulsar's historical consolidated financial statements and has been prepared to illustrate the effects on this data of the Pulsar acquisition and this offering. The Unaudited Pro Forma Statements of Operations for the year ended December 31, 1998 gives effect to the acquisition and the closing of this offering as if these transactions had occurred as of January 1, 1998. The Unaudited Pro Forma Balance Sheet as of December 31, 1998 gives effect to the acquisition and this offering as if these transactions had occurred as of December 31, 1998. The Pulsar acquisition will become effective simultaneously with, and as a condition to, the closing of this offering. The acquisition will be recorded using the purchase method of accounting.
The pro forma adjustments are based upon preliminary estimates, currently available information and assumptions that management deems appropriate. We have assumed for the purpose of determining the purchase price of the Pulsar acquisition that our common stock issued to the Pulsar stockholders is valued at the initial public offering price. The preliminary estimates regarding allocation of the purchase price are subject to uncertainties, including, among others, the final offering price per share and final determination of the fair value of the net assets acquired. In management's opinion, the preliminary estimates regarding allocation of the purchase price of Pulsar are not expected to differ materially from the final allocation. The purchase price allocation will be finalized after the closing of the acquisition. The pro forma financial data presented herein are not necessarily indicative of the results we would have obtained had these events occurred at the beginning of the period, as assumed, or of our future results as a combined entity.
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UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
______
(AA) Includes adjustments directly attributable to the Pulsar acquisition. (BB) Reflects the amortization of goodwill and other intangibles of $32.2 million attributable to the acquisition, amortized on a straight line basis over a 15-year period. (CC) Reflects the reduction of interest expense which would result from the repayment of $12.5 million of debt as set forth in "Use of Proceeds."
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(DD) Reflects the income tax effect of the change from an S corporation to a C corporation.
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UNAUDITED PRO FORMA BALANCE SHEETS (DOLLARS IN THOUSANDS)
______
(A) The adjustment reflects the Pulsar acquisition under the purchase method of accounting through the issuance of 2,169,938 shares of common stock with a fair value of $21.7 million and the assumption of net liabilities of $10.5 million. The allocation of fair value is preliminary. (B) The adjustment reflects anticipated additional borrowings of $700,000 subsequent to December 31, 1998, as well as the repayment of debt in the amount of $5.9 million from the use of proceeds. (C) Reflects the repayment of debt from the proceeds of this offering.
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(D) Reflects the net proceeds from the sale of 3,000,000 shares of our common stock, at an assumed price of $10.00 per share. (E) The adjustment gives effect to the change from an S corporation to a C corporation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected Financial Data of Litronic and Pulsar, the Pro Forma Financial Data, and the financial statements and related notes appearing elsewhere in this prospectus.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document GENERAL
Litronic provides professional Internet data security services and develops and markets software and microprocessor-based products needed to secure electronic commerce and communications over the Internet and other communications networks based on Internet protocols. Litronic's primary technology offerings use public key infrastructure, which is the standard technology for securing Internet-based commerce and communications.
Prior to 1990, Litronic was solely a provider of electronic interconnect products to government and commercial entities. In 1990, Litronic formed its data security division, which forms the basis of its operations today. The data security division was engaged primarily in research and development until 1993 when it began to generate meaningful revenue. In September 1997, Litronic sold its Intercon division, which consisted of the assets relating to its interconnect operations, for cash to Allied Signal Inc., a non-related, publicly-traded company. The gain on sale was $15 million, net of tax expense of $241,000. In addition to the cash proceeds received, the sales agreement provided for Litronic's right to receive a contingent purchase price. Effective November 30, 1997, this right was distributed pro rata to the shareholders of Litronic. Except for senior management, these operations were operated independently from Litronic's data security operations. Litronic charged direct costs to the division incurring them. Indirect or shared costs, such as senior management compensation and benefits, rent, utilities and costs of tax, legal and other advisory services, were allocated on the basis of actual usage and head count. Litronic's historical consolidated financial statements have been restated to reflect the sale of the Intercon division as discontinued operations. See Note 2 to Notes to Consolidated Financial Statements of Litronic.
Upon the closing of this offering, Litronic is acquiring Pulsar, a provider of network-based information technology consulting services to commercial accounts and federal, state and local government agencies, in exchange for 2,169,938 shares of our common stock valued at $10.00 per share, the anticipated initial public offering price. In addition to its consulting services, Pulsar also has an established product reseller business, which focuses on resales to government agencies, large corporate accounts and state and local governments.
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PRO FORMA INFORMATION AND FUTURE TRENDS
Following this offering, we intend to roll out our enterprise-wide data security products to Pulsar's significant existing client base. We believe that Pulsar's custom-designed secure PCs will provide us with another type of data security product offering, thereby broadening the scope of our offerings and enabling us to provide our customers with a comprehensive data security solution. Our strategy also involves continuing Pulsar's recent shift in product reselling focus to higher margin products, expanding Pulsar's professional service offerings and increasing sales of Pulsar's products and professional services to commercial customers and state and local governments. We also intend to leverage Pulsar's direct sales force, distribution channels and partners to expand our marketing of our Internet data security products.
REVENUE
During the year ended December 31, 1998, sales of Internet data security products, including NetSign, Pro File Manager and CryptOS, accounted for 6% of our revenue on a pro forma combined basis.
We are currently experiencing increased demand for our Internet data security products, including NetSign, ProFile Manager and CryptOS, from commercial customers. Our recently released Internet-related products such as NetSign, NetSign Pro, CipherServer, and developer toolkits such as CryptOS SDK, have also experienced favorable market acceptance. We expect to continue to experience significant increases in sales of these products as a result of the expected continued growth in electronic commerce and communications over the Internet and our plan to roll out our data security products to Pulsar's existing and significant client base.
During the year ended December 31, 1998, on a pro forma combined basis, product reselling accounted for 89% of our revenue and license and service revenue accounted for 6% of our revenue. As we expand our professional service offerings and grow our sales of Internet data security products, we expect license and service revenue to increase as a percentage of revenue and product reselling to account for a decreasing portion of our revenue.
On a pro forma combined basis, one of our customers, the U.S. Immigration and Naturalization Service, accounted for more than 10% of revenue (21%) during the year ended December 31, 1998. Sales to U.S. government agencies accounted for approximately 90% of our pro forma combined revenue for the year ended December 31, 1998.
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GROSS MARGINS
During the year ended December 31, 1998, Litronic's data security products had gross margins of 46% and Pulsar's product reselling activities had gross margins of 7%. Pulsar recently shifted its product reselling focus toward higher margin computer and network security products, including intrusion detection software and firewalls. We intend to continue to focus our product reselling efforts toward these products. As a result, we expect product reselling gross margin to increase as a percentage of corresponding revenue. Our license and service revenue has relatively high gross margins with a gross margin of 48% for the year ended December 31, 1998 on a pro forma combined basis. Because we expect our higher gross margin sources of revenue to increase as a percentage of revenue and our gross margin from product reselling to increase, we expect our gross margin to increase as a percentage of total revenue.
COST CUTTING MEASURES
Pulsar has taken several cost cutting measures since the beginning of 1998 which have significantly reduced the expenses associated with selling, general and administrative activities, including an overall reduction of staff from 75 persons at December 31, 1997 to 44 persons at April 1, 1999, enhanced credit procedures and reduced rent expense. As a combined entity, we expect to further decrease our rent expense through the consolidation of Litronic's Washington, D.C. area offices into Pulsar's offices in Lanham, Maryland.
FOCUSED MARKETING EFFORTS
We have recently begun to focus our marketing efforts on commercial customers. The commercial markets for PKI security products are expected to be intensely competitive. In addition, as we intensify our focus on the commercial markets and expand the marketing of our Internet data security products, we anticipate increasing expenditures for sales and marketing, particularly expenses associated with
. opening additional marketing channel support offices; . adding commercial sales personnel to focus on sales to commercial markets; and . continually introducing and refining products in response to market demands.
Our sales and marketing expenses are generally incurred in advance of associated revenue and we expect these expenses to increase in the near term both as a percentage of revenue as well as in amount. These measures could adversely affect our operating income.
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As a result of the cost cutting measures and focused marketing efforts described above we expect a net reduction in selling, general and administrative expenses.
RESEARCH AND DEVELOPMENT
In an effort to increase our research and development activities, we have allocated $6.2 million of the net proceeds of this offering to research and development activities for the next 12 months. We expect expenses related to research and development to increase significantly as a consequence of our increased focus on these activities.
INTANGIBLE ASSETS
The Pulsar acquisition will result in a significant increase in our intangible assets. Approximately $32.2 million, or 53%, of our pro forma combined, as adjusted, assets as of December 31, 1998, consisted of intangible assets arising from the acquisition. This amount represents goodwill and other intangibles, which will be amortized over 15 years and represents the excess of the aggregate purchase price paid in connection with the acquisition over the fair value of net assets acquired. The amount of goodwill and other intangibles amortized in a particular period constitutes a non-cash expense, which is not tax deductible, that reduces our net earnings or increases our net loss.
RESULTS OF OPERATIONS--COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
LITRONIC
TOTAL REVENUE. Total revenue increased 8% from $9.4 million during the year ended December 31, 1996 to $10.2 million during the year ended December 31, 1997 and decreased 35% from 1997 to $6.7 million during the year ended December 31,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1998. The increase from 1996 to 1997 was primarily attributable to increased sales of the ARGUS 300 products to the U.S. Army Corps of Engineers. The decrease from 1997 to 1998 was primarily attributable to the decreased sales of the ARGUS 300 products, as described below.
During the year ended December 31, 1996, Litronic derived 39%, 29% and 18% of its revenue from sales to Lockheed Martin Corporation, U.S. Army Corps of Engineers and the National Security Agency. During the year ended December 31, 1997, Litronic derived 45%, 20%, and 19% of its revenue from sales to U.S. Army Corps of Engineers, Lockheed Martin Corporation and the National Security Agency. During the year ended December 31, 1998, Litronic derived 44%, 20% and 17% of its revenue from sales to Lockheed Martin Corporation, the National Security Agency and the U.S. Army Corps of Engineers. Sales to federal government agencies accounted for approximately 84% and 81% of Litronic's sales during the years ended December 31, 1997 and 1998.
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PRODUCT REVENUE. Product revenue increased 10% from $7.9 million in the year ended December 31, 1996 to $8.6 million in the year ended December 31, 1997 and decreased 40% from 1997 to $5.2 million in the year ended December 31, 1998. The increase from 1996 to 1997 was primarily attributable to increased sales of our Argus 300 products to the U S. Army Corps of Engineers. The decrease from 1997 to 1998 is primarily attributable to reduced sales of our ARGUS 300 products to the U.S. Army Corps of Engineers as a result of the substantial completion of the Corp of Engineers Financial Management Services contract (the CEFMS contract). We expect that sales of the ARGUS 300 product under the CEFMS contract will continue to diminish; however, we expect significant additional sales of the ARGUS 300 and other products to the U.S. Army Corps of Engineers as a result of its recently commenced program to upgrade its information technology systems periodically. Based on our experience with the U.S. Army Corps of Engineers, we expect to participate in the program through sales of the ARGUS 300 and other products. The CEFMS contract with the U.S. Army Corps of Engineers expired September 30, 1998. The Defense Messaging System contract expires in November 1999, but it may be renewed by Lockheed Martin for up to four one-year periods.
LICENSE AND SERVICE REVENUE. License and service revenue was $1.5 million during the years ended December 31, 1996 and 1997 and declined from 1997 by 7% to $1.4 million for the year ended December 31, 1998. The decline from 1997 to 1998 was attributable primarily to reduced service revenue from the National Security Agency as a result of its determination that it will no longer pay for Litronic-provided support services for the Defense Messaging System and the subsequent decline in support requests from users of Litronic's support services. Also included in license and service revenue for the year ended December 31, 1998 is $398,000 of reimbursements related to the Forte project which Litronic received for its research and development efforts.
TOTAL GROSS MARGIN. Gross margin increased as a percentage of revenue from 50% during the year ended December 31, 1996 to 62% during the year ended December 31, 1997 and decreased as a percentage of revenue to 43% during the year ended December 31, 1998. The increase from 1996 to 1997 was due primarily to a change in product mix comprised of increased sales of the ARGUS 300 products to the U.S. Army Corps of Engineers and sales of higher margin software products. The decline from 1997 to 1998 is primarily attributable to reduced product sales as described below.
PRODUCT GROSS MARGIN. Product gross margins increased as a percentage of net product revenue from 48% during the year ended December 31, 1996 to 63% during the year ended December 31, 1997 and decreased to 46% during the year ended December 31, 1998. The increase from 1996 to 1997 resulted primarily from increased sales of ARGUS data encryption products to the U.S. Army Corps of Engineers. The decrease from 1997 to 1998 is primarily attributable to reduced sales under the CEFMS contract and sales of low margin pass-through products to the National Security Agency.
LICENSE AND SERVICE GROSS MARGIN. License and service gross margin decreased as a percentage of its revenue from 62% during the year ended December 31, 1996 to 58% during the year ended December 31, 1997 and decreased from 1997 to 34% during the year
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ended December 31, 1998. The decrease from 1996 to 1997 was due to additional head count and higher per employee costs. The decrease from 1997 to 1998 resulted primarily from higher compensation costs associated with the reduction of support services revenue under the Defense Messaging System contract. All costs relating to the Forte project are included in research and development expenses during the year ended December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document administrative expenses increased 70% from $2.1 million during the year ended December 31, 1996 to $3.5 million during the year ended December 31, 1997 and decreased 25% from 1997 to $2.6 million during the year ended December 31, 1998. As a percentage of revenue, selling, general and administrative expenses increased from 22% during the year ended December 31, 1996 to 34% during the year ended December 31, 1997 and increased from 1997 to 40% during the year ended December 31, 1998. Selling, general and administrative expenses during 1997 were higher due to bonuses paid to shareholder employees following the sale of the Intercon division. In addition, selling, general and administrative expenses increased as a percentage of revenue due to increased staffing to support the anticipated expansion of Litronic's business.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased 62% from $725,000 during the year ended December 31, 1996 to $1.2 million during the year ended December 31, 1997 and increased 14% from 1997 to $1.3 million during the year ended December 31, 1998. The increases from 1996 to 1998 were primarily attributable to increased costs associated with increased new product development, including expenses associated with the development efforts of the Forte microprocessor, which we are designing in conjunction with Atmel Corporation to be embedded in our Forte PKIcard. As a percentage of revenue, research and development expenses increased from 8% during the year ended December 31, 1996 to 12% during the year ended December 31, 1997 and increased from 1997 to 20% during the year ended December 31, 1998. These increases reflected our continued investment in research and development of future products and services coupled with the reduction in revenue in 1998 described above.
INTEREST EXPENSE, NET. Interest expense, net, increased by 121% from $19,000 during the year ended December 31, 1996 to $42,000 during the year ended December 31, 1997 and increased almost tenfold from 1997 to $418,000 during the year ended December 31, 1998. The increases in interest expense from 1996 to 1998 were attributable to increased levels of borrowings required for operations.
INCOME TAXES. Prior to this offering, Litronic elected to be treated as an S corporation under the provisions of Section 1362 of the Internal Revenue Code of 1986 and used the accrual basis of reporting for income tax purposes. Accordingly, Litronic did not provide for federal income taxes at the corporate level. Litronic was subject to state taxes on earnings before taxes. The provision for state income taxes was $29,000 and $22,000 for the years ended December 31, 1996 and 1997. For the year ended December 31, 1998 Litronic had a
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benefit of $95,000 as a result of losses from continuing operations before income taxes of $1.5 million.
BACKLOG. At December 31, 1998, Litronic had total backlog of $717,000, including $109,000 attributable to Lockheed Martin Corporation and $596,000 attributable to the National Security Agency. Backlog represents signed purchase orders received but not filled and, in the case of the $596,000 attributable to the National Security Agency, reimbursements for funding of future research and development expense. At December 31, 1997, we had total backlog of $1.1 million, including $466,000 attributable to Lockheed Martin Corporation and $578,000 attributable to the National Security Agency.
PULSAR
TOTAL REVENUE. Total revenue decreased 9%, from $166.0 million during the year ended December 31, 1996 to $151.5 million during the year ended December 31, 1997 and decreased 47% from 1997 to $80.5 million during the year ended December 31, 1998.
During the years ended December 31, 1997 and 1998, Pulsar derived 23% and 11% of its revenue from sales to the U.S. Immigration and Naturalization Service. Total revenue to federal government agencies decreased 10% from $101.0 million during the year ended December 31, 1996 to $91.4 million for the year ended December 31, 1997 and declined 21% from 1997 to $72.5 million during the year ended December 31, 1998. The decrease is attributable primarily to a decrease in Pulsar's sales to the U.S. government under its Section 8(a) contracts, partially offset by an increase in General Services Administration schedule revenue and National Institutes of Health contract revenue.
PRODUCT REVENUE. Product revenue declined 8%, from $155.7 million during the year ended December 31, 1996 to $142.7 million during the year ended December 31, 1997, and declined 46% from 1997 to $77.2 million during the year ended December 31, 1998. This decrease was primarily attributable to the following factors:
. In 1997, Pulsar made a strategic decision to eliminate its high volume, low margin Federal Systems Integration (FSI) program activities, which accounted for 23% of its revenue during 1996, 24% of its revenue during
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1997 and 4% of its revenue during 1998. Sales under the FSI program were phased out during this period due to the diminishing margins produced by these sales. FSI revenue decreased 4% from $38.1 million in the year ended December 31, 1996 to $36.7 million in the year ended December 31, 1997 and decreased 92% from 1997 to $3.2 million in the year ended December 31, 1998.
. Pulsar voluntarily withdrew from the Section 8(a) program in June 1997 in anticipation of its scheduled graduation from the program in November 1997. Section 8(a) contract revenue decreased by 71% from $50.1 million
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during the year ended December 31, 1996 to $14.3 million during the year ended December 31, 1997 and decreased 78% to $3.1 million during the year ended December 31, 1998.
. Commercial, state and local government revenue decreased by 8% from $24.8 million during the year ended December 31, 1996 to $22.9 million during the year ended December 31, 1997, primarily due to a sales staff focus on FSI program revenues, and decreased 83% to $3.9 million during the year ended December 31, 1998 primarily due to the loss of a contract with Montgomery County, Maryland and the closing of Pulsar's Atlanta sales office.
. The reductions in revenue were partially offset by an increase in GSA schedule revenue commencing in 1996 and NIH revenue commencing in 1998. This revenue increased 61%, from $42.7 million during the year ended December 31, 1996 to $68.8 million during the year ended December 31, 1997, and declined 3% from 1997 to $67.0 million during the year ended December 31, 1998. The overall increase in GSA and NIH contract revenue was primarily due to Pulsar's shift in sales focus in response to the Federal Streamline Act of 1996, which encourages all agencies to use the GSA or the NIH vehicle to procure products and services in support of information technology requirements in lieu of traditional time- restrictive contracting methods. The decrease in GSA revenue from 1997 to 1998 was due in part to the government's reallocation of budget dollars from hardware and software procurements toward resolving year 2000 issues.
SERVICE REVENUE. Service revenue declined by 14%, from $10.3 million during the year ended December 31, 1996 to $8.8 million during the year ended December 31, 1997 and declined 62% from 1997 to $3.4 million during the year ended December 31, 1998. The decrease from 1996 to 1997 was attributable primarily to the completion of a contract with Samsung Electronics. The decrease from 1997 to 1998 was attributable primarily to a reduction in service revenue from expiring Section 8(a) contracts with the U.S. Department of Education and the Naval Research Lab contract.
TOTAL GROSS MARGINS. Pulsar's gross margin decreased as a percentage of revenue from 10% during the year ended December 31, 1996 to 6% during the year ended December 31, 1997 and increased from 1997 to 9% during the year ended December 31, 1998. The gross margin declined from $16.6 million for the year ended December 31, 1996 to $9.3 million for the year ended December 31, 1997 and declined from 1997 to $7.2 million for the year ended December 31, 1998. The overall decrease from 1996 to 1997 was attributable primarily to the reduction in total revenue combined with a decrease in gross margin percentage. The decrease from 1997 to 1998 was attributable only to a reduction in total revenue.
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PRODUCT GROSS MARGIN. Product gross margins declined as a percentage of revenue from 7% during the year ended December 31, 1996 to 3% during the year ended December 31, 1997 and increased from 1997 to 7% during the year ended December 31, 1998. The decrease in product margins from 1996 to 1997 was attributable to industry competition and write-off of obsolete inventory. Consistent with Pulsar's business plan, the increase from 1997 to 1998 is attributable primarily to reduced FSI sales, which are lower margin product, and Pulsar's successful bidding for higher margin product contracts, partially offset by the write-off of obsolete inventory.
SERVICE GROSS MARGIN. Service gross margins remained unchanged at 53% during the years ended December 31, 1996 and 1997 and increased slightly from 1997 to 54% during the year ended December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 27% from $13.5 million during the year ended December 31, 1996 to $17.2 million during the year ended December 31, 1997 and decreased 27% from 1997 to $12.5 million during the year ended December 31,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1998. The increase from 1996 to 1997 was attributable primarily to bad debt expenses associated with accounts receivables and notes receivables. The decrease from 1997 to 1998 reflects a reduction in the total amount of bad debt expense and a reduction in administrative and sales staffing. Selling, general and administrative expenses increased as a percentage of revenue from 8% during the year ended December 31, 1996 to 11% during the year ended December 31, 1997 and increased from 1997 to 16% during the year ended December 31, 1998.
BAD DEBT EXPENSE AND MEASURES DESIGNED TO REDUCE BAD DEBTS. Bad debt write- offs increased from $403,000 during the year ended December 31, 1996 to $5.3 million during the year ended December 31, 1997 and decreased from 1997 to $3.4 million during the year ended December 31, 1998. Bad debt expense in 1997 was primarily attributable to extending credit to commercial clients who did not meet their obligations ($3.9 million), commercial loans outside of the normal course of business that were deemed uncollectible ($702,000), and notes receivable and related accrued interest to related parties that were deemed uncollectible ($682,000). Bad debt expense in 1998 was incurred from commercial clients who did not meet their obligations ($1.8 million) and rebate receivables that expired because they were incomplete or not collected on a timely basis ($1.6 million). Pulsar has implemented procedures to reduce the exposure to commercial bad debts, including:
. performing thorough credit reviews on all new and existing non- government customers, including verifying references and analyzing customer's Dun and Bradstreet reports before extending credit;
. changing its customer profile by significantly reducing FSI reseller clients from the federal government to Fortune 500 clients, thus reducing credit risk;
. implementing a tickler system to ensure that rebates are filed in a timely manner; and
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. establishing a collections staff to follow-up on payments related to rebates.
COST CUTTING MEASURES DESIGNED TO REDUCE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In an effort to reduce selling, general and administrative expenses in future periods, Pulsar has taken significant cost cutting measures, including:
. automating administrative job functions through business process reengineering and other reductions, thus reducing head count by 31 positions from January 30, 1998 to April 1, 1999; and
. relocating to less expensive office space beginning October 1, 1998, thus decreasing monthly rent expense from $45,000 to $11,500.
INTEREST EXPENSE. Interest expense increased by 2%, from $3.6 million during the year ended December 31, 1996 to $3.6 million during the year ended December 31, 1997, and decreased by 42% from 1997 to $2.1 million during the year ended December 31, 1998. Pulsar's average daily borrowings decreased during 1996, but additional interest expense was recognized due to a new agreement Pulsar entered into with its creditor, IGFC. Interest expense decreased in 1998 due to a significant decrease in borrowings.
INTEREST INCOME. Interest income decreased by 28%, from $639,000 during the year ended December 31, 1996 to $457,000 during the year ended December 31, 1997 and decreased by 87% to $61,000 during the year ended December 31, 1998. These decreases are attributable primarily to a reduction in the outstanding notes receivable balances. Also, during 1998, Pulsar did not recognize interest income on the related party notes receivable.
LIQUIDITY AND CAPITAL RESOURCES
On a pro forma combined, as adjusted, basis, we had working capital of $10.0 million as of December 31, 1998.
We have entered into a letter of intent with Fidelity Funding relating to a new $20.0 million secured revolving line of credit facility and expect to enter into a definitive agreement permitting us to borrow under this facility commencing upon the closing of this offering. The letter of intent contemplates:
. a three-year term, subject to one-year renewals at the lender's option;
. an annual interest rate of prime plus .625%;
. a pledge of all of our personal and real property as collateral; and
. a cap on our borrowings equal to 85% of our accounts receivable plus the lesser of (a) 50% or (b) $1.0 million of our on-hand
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document inventory.
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We believe that the net proceeds of this offering, together with availability under our new $20.0 million revolving line of credit and existing cash and cash equivalents, will be sufficient to satisfy our contemplated cash requirements for at least 12 months following the closing of this offering, including planned capital expenditures of approximately $1.0 million. We could be required to seek additional financing if:
. our plans change due to changes in market conditions, competitive factors, progress of our research and development efforts or new opportunities that may become available in the future;
. our assumptions change or prove to be inaccurate; or
. the net proceeds of this offering or our cash flows prove to be insufficient to finance our growth strategy.
LITRONIC
Historically, Litronic's cash requirements have been financed through a combination of cash flow from operations, except in the year ended December 31, 1998, bank financing and loans from its principal shareholders and affiliates. Some of Litronic's borrowings contain covenants and restrictions, including maintenance of minimum tangible net worth and working capital, and they prohibit the payment of dividends. Litronic was in compliance with or had received waivers for these covenants as of December 31, 1998 and March 31, 1999.
During the year ended December 31, 1998, cash used in operations for Litronic was $1.7 million, primarily due to a net loss of $1.4 million, a decrease in accrued liabilities of $465,000, primarily due to the payment of accrued bonuses, and an increase in other current assets of $249,000. These were partially offset by a decrease in accounts receivable of $256,000 due to improved collections in the latter part of 1998.
During the year ended December 31, 1998, cash provided by financing activities was $2.3 million, consisting primarily of borrowings of $6.5 million under the revolving note payable to the bank and $5.2 million under the long- term notes payable, partially offset by repayments of $3.5 million under a related party note payable and $6.5 million under the revolving note payable to a bank.
Litronic's capital expenditures, including computer equipment, test equipment and furniture and fixtures, were $118,000 during the year ended December 31, 1998. Litronic's capital expenditures were funded through cash generated from operations and through its secured revolving credit line and borrowing from its principal shareholders.
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PULSAR
Pulsar's capital requirements have been and will continue to be significant. To date, its cash requirements have exceeded its cash flow from operations. Pulsar historically has satisfied cash requirements through borrowings. Pulsar's financial statements include an explanatory paragraph in the independent auditors' report that states that Pulsar's losses from operations, violation of debt covenants and net capital deficiency raise substantial doubt about Pulsar's ability to continue as a going concern. The debt covenants violated by Pulsar were contained in its inventory and working capital financing agreement with IGFC and in a series of subsequent forbearance agreements. These covenants required Pulsar to maintain at various times financial ratios of annualized revenue to working capital, net profit after tax to revenue and total liabilities to tangible net worth. Pulsar has received a forbearance from IGFC through the closing of this offering and expects to repay IGFC in full following the closing of this offering.
Total cash used for the year ended December 31, 1998 was $1.9 million. Pulsar's cash provided from operations for the year ended December 31, 1998, was $18.5 million. This primarily resulted from collections of accounts receivable of $17.7 million, reduction of inventory of $1.6 million and an increase in accounts payable of $2.6 million, offset by a net loss of $7.4 million, including a non-cash bad debt expense of $3.4 million.
Cash used in financing activities for the year ended December 31, 1998, was $21.5 million, resulting primarily from $18.7 million in payments made to decrease indebtedness outstanding under its financing arrangement with IGFC, a portion of which was funded by borrowings of $1.5 million against the cash
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document surrender value of life insurance policies.
Pulsar's capital expenditures, including computer equipment, warehouse equipment, and furniture and fixtures, were $58,000 for the year ended December 31, 1998. Pulsar has notes receivable from related parties of approximately $1,198,000 as of December 31, 1998 which are classified as a component of stockholders' equity and have been fully reserved. Proceeds from loans from cash surrender value of life insurance net of premium payments were $1.2 million. Accounts payable of $5.9 million were converted to notes payable during 1998.
Pulsar funded its operations during the year ended December 31, 1998 through its financing agreement with IGFC. Under this agreement, Pulsar purchases hardware and software from authorized suppliers and finances the purchases through IGFC. The agreement provides for an initial credit line up to $18 million, which has been increased and decreased over time through amendments to the forbearance agreement, based on Pulsar's hardware and software procurement requirements financed through the line of credit, and as a result of defaults that have occurred related to the forbearance agreements. As of March 31, 1999, the maximum amount available under the line of credit was $9.0 million. The line of credit allows Pulsar to finance up to 85% of its eligible accounts receivable
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and 100% of the value of its on-hand inventory. The credit line is secured by substantially all assets of Pulsar and is personally guaranteed by William W. Davis, Sr. and Lillian A. Davis.
IGFC has agreed to forbear Pulsar's violations of financial covenants in the IGFC financing agreement in exchange for Pulsar's agreement to pay to IGFC, on or before October 1999, either (a) warrants to purchase for a nominal amount a fully diluted 4% ownership interest in Pulsar or (b) the lesser of:
. $650,000,
. 4% of the sale price upon the sale of all or substantially all of Pulsar's assets, or
. a pro rata share of $650,000 upon the sale of less than substantially all of Pulsar's assets.
We intend to satisfy this obligation to IGFC by paying $650,000 to it upon the closing of this offering.
Pulsar has the following additional amounts due within the next twelve months:
. Nine promissory notes payable to various vendors, which accrue interest ranging from 10% to 12% and have an aggregate principal balance of $3.4 million as of March 31, 1999. Balloon payments in the aggregate amount of $1.9 million are due in May 1999 and the balance is due by November 1999;
. total payments of $608,000 are due in May 1999 under negotiated payout agreements with ten accounts payable vendors.
Additionally, Pulsar has approximately $1.2 million of accounts payable balances which are more than 90 days overdue. We expect to use our newly acquired line of credit and cash from operations to fund these obligations to the extent we are not able to negotiate extended payment arrangements.
We have allocated $12.5 million of the net proceeds of this offering to repay outstanding indebtedness, including $6.2 million of indebtedness assumed in the Pulsar acquisition. All of the indebtedness being repaid is required to be paid upon the closing of this offering, as a result of change of control provisions or to effect the release of personal guarantees.
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YEAR 2000 ISSUES
An issue affecting us and others is the inability of many computer systems and applications to process the year 2000 date change, the date 9/9/99 and the leap year 2000. Many currently installed computer systems and software applications are coded to accept only two digit entries in the date code field. These date code fields will need to accept entries to distinguish 21st century dates from 20th century dates. The inability to recognize or properly treat the year 2000 issue may cause Litronic's systems and applications to process critical financial and operational information incorrectly.
We have established a committee to determine the extent to which we may be
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document vulnerable to the year 2000 issue. The committee is responsible for the ongoing assessment, renovation of, testing, and certification of all business-critical infrastructure systems and applications software. In the process of its evaluation of the year 2000 issue, the committee has developed potential business disruption scenarios and is developing a contingency plan, which we anticipate will be completed by July 1999. The costs incurred to date related to the year 2000 issue have related primarily to time spent by employees in year 2000 compliance matters and have not been significant. We do not believe future costs will be significant. The following is a description of how we have categorized and are addressing the year 2000 issue.
INTERNAL SYSTEMS
We have evaluated our internal computer systems in an effort to determine the actions, if any, necessary to make them year 2000 compliant. Our evaluation has involved testing our systems to ensure that they are year 2000 compliant. Based on its present review of our systems, the committee has determined that we do not have a high risk of computer-related internal systems problems from the year 2000 issue.
EMBEDDED SYSTEMS
We also recognize that there are risks with respect to embedded systems that are not necessarily part of our information technology systems but contain microprocessor chips which may not function properly with the change of date to the year 2000. The majority of the embedded systems on which we rely in our day-to-day operations are owned and managed by the lessors of the buildings in which our offices are located, or by agents of these lessors. We have received letters from our lessors and, as applicable, their agents indicating the year 2000 compliance of the embedded systems. Based upon these responses we do not believe there are any year 2000 compliance issues with our embedded systems.
Because we believe that our information technology and embedded systems will be substantially year 2000 compliant in advance of the year 2000 date change, we have no contingency plan to address non-compliance. We expect that, as we complete testing of
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information technology and embedded systems, we will develop contingency plans if we determine that any business critical systems will not be year 2000 compliant.
OUTSIDE VENDORS AND CUSTOMERS
Disruptions with respect to the computer systems of vendors or customers, which are outside our control, could impair our ability to obtain services or conduct business with our customers. Disruptions of our utilities or telecommunications systems could have a material adverse effect upon our financial condition and results of operations. We believe that no other providers are material to our business. Disruptions of customers' computer systems could interfere with customers' ability to make timely payments on accounts, could disrupt our customers' ability to manage the installation process of our products, which could adversely affect our ability to reach our milestones, and thus to recognize revenue, and could disrupt other administrative activities.
The committee has sent year 2000 issue questionnaires to our significant vendors, suppliers and customers. Although the responses we have received do not indicate any significant year 2000 issues, we do not have any assurances that all of our significant vendors, suppliers and customers will take the necessary steps to ensure that their respective systems will be protected against the year 2000 issue or that even if such steps are taken, they will be successful. As we continue to assess the risk of our significant vendors', customers' and suppliers' systems, we will develop and implement, if necessary, curative plans and contingency plans to address any year 2000 compliance issues.
OUR PRODUCTS
We have determined that our products, to the extent that underlying hardware platforms, operating systems and databases will accommodate the year 2000 date change, are year 2000 compliant and will accommodate the year 2000 date change.
We anticipate that virtually all of our customers and potential customers will be required to evaluate their information technology systems with respect to the year 2000 date change and that some of our customers and potential customers may incur material costs in connection with this evaluation and any necessary repairs and replacements. Customers and potential customers may be required to devote material portions of their information technology budgets to these evaluations, repairs and replacements, which could materially reduce their other information technology purchases in 1999, including their purchases of Litronic's products, particularly as the year 2000 date change draws closer. We
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document do not have any information as to the degree to which this issue will affect our customers or potential customers.
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SUMMARY
There can be no assurance that any year 2000 issue-related precautions with respect to our internal information technology systems, embedded systems or our products will eliminate the numerous and varied risks associated with the year 2000 date change. Further, there is a risk that we will be adversely affected by the year 2000 issue or related difficulties encountered by vendors or customers or by any downturn in information technology purchases or in the economy in general as the year 2000 date change draws nearer. Any of these risks could adversely affect our business.
Management believes that the most likely worst case scenario related to the year 2000 issues that we may experience would be either an inability to obtain inventory components from suppliers or delays in receiving orders or payments from customers due to year 2000 problems experienced by these third parties. These events, if experienced, could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our quarterly operating results may fluctuate significantly as result of a variety of factors, many of which are outside our control. These factors include:
. the short-term nature of some of our customer commitments;
. the lengthy sales and implementation cycle for some of our of our products and projects;
. patterns of information technology spending by customers;
. the timing, size, mix and customer acceptance of our product and service product offerings and those of our competitors;
. the timing and magnitude of required capital expenditures;
. the need to use outside contractors to complete some assignments; and
. general economic conditions.
As a result of these fluctuations, comparisons of quarterly results may not be meaningful and should not be relied upon, nor will they necessarily reflect on future performance.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement 133, Accounting for Derivative Instruments and Hedging Activities. The new statement established accounting and reporting standards for derivative instruments and for hedging activities and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed
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or Obtained for Internal Use. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, and is effective for fiscal years beginning after December 15, 1998.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start- Up Activities. SOP 98-5 provides guidance on the financial reporting of start- up costs and organization costs, and requires these costs to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998.
In December 1998, the AICPA issued SOP 98-9. SOP 98-9 amends paragraphs of SOP 97-2 to require recognition of revenue using the residual method under some circumstances, and is effective for fiscal years beginning after March 15, 1999.
The adoption of these new standards is not expected to have a material impact on our consolidated financial statements.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document INDUSTRY INFORMATION
INTERNET DATA SECURITY INDUSTRY
THE INTERNET DATA SECURITY MARKET
Consumers, government agencies and corporations are increasingly relying upon Internet Protocol Networks to conduct electronic commerce and communications. International Data Corporation estimates that the number of Internet users will grow from 97 million in 1998 to 320 million in 2002, with electronic commerce growing from $32 billion to $426 billion over the same period. The increasing proliferation of, and reliance upon, shared electronic data has caused data security to become a paramount concern of businesses, government, educational institutions and consumers.
Demand for information security products is forecast by Datamonitor, an independent research firm, to increase from $1.6 billion in 1997 to almost $7.0 billion by 2001, an annual growth rate of 44%. In addition, Datamonitor forecasts the Internet-security PKI segment to be the fastest growing segment of this market, increasing from $75 million in 1997 to approximately $1.9 billion by 2001, an annual growth rate of 124%. The market for encryption technology is estimated by Datamonitor to be the second fastest growing segment of the market increasing from $168 million in 1997 to more than $1 billion in 2001.
We believe our data security products provide the solution for entities and consumers seeking to provide protection for their proprietary data.
INCREASING NEED FOR INTERNET DATA SECURITY
In addition to protecting against unauthorized access to proprietary information, data security affects an enterprise's ability to conduct electronic commerce. Companies such as Amazon.com, Inc., Bank of America, Cisco Systems, Inc., Dell Computer Corp., eBay and E*Trade Group, Inc. have enjoyed dramatic growth in their online customer base and revenue as consumers execute an increasing number of transactions over the Internet. The Internet's ease of use, 24-hour availability, speed of delivery, global reach and ability to simplify product and vendor comparisons are fueling this growth. However, consumer concerns about the trustworthiness and security of the Internet have been one of the main impediments to even faster growth of electronic commerce and other communications. Hacking tools, such as password guessing and address spoofing (or impersonation) programs, are freely available on the Internet and bulletin board systems. Merchants and consumers need assurances that consumers making electronic purchases are correctly identified and confirmed and that the confidentiality of information such as credit card and bank account numbers are maintained.
We believe that continued expansion of electronic commerce will require the implementation of improved PKI security measures which will irrefutably verify the identity of a party over the Internet and ensure that the information being transmitted between that party and
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As enterprises place an increasing reliance on electronic commerce and communication, the need to protect confidential data from unauthorized intrusion has become paramount. According to the Computer Security Institute, 78% of respondents to its 1998 CSI/FBI Computer Crime and Security Survey reported that they are connected to the Internet, but 39% of the respondents did not have a first line of defense against unauthorized intrusion into their networks. Unauthorized use of computer systems within the previous 12 months was reported by 64% of these respondents, representing a 16% increase from the prior year.
The consequences of unauthorized access, which is often undetected, can range from theft of proprietary information or other assets to the alteration or destruction of stored data. The Computer Security Institute survey reports that approximately 72% of respondent companies experienced a financial loss related to information security and disaster recovery in the past two years. According to estimates by the Federal Bureau of Investigation, U.S. companies experience estimated losses of $5 to $10 billion per year as a result of unauthorized access to information and data. The Yankee Group, an independent research firm, estimates that network security breaches cost corporations in the U.S. over $5.0 billion per year in business losses, including productivity, customer confidence and competitive advantage.
REQUIREMENTS FOR TRUSTED END-TO-END DATA SECURITY
Today's client operating systems and Internet protocol-based networks lack
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document basic security and key Internet security features such as data privacy and integrity, identification, authentication and auditing.
End-to-end data security concerns can be addressed by a variety of means. Traditionally, enterprises relied heavily on passwords to restrict access to proprietary information and materials. However, because of the risk of loss or theft, more advanced protective measures have been developed to include combinations of passwords and tokens with message encryption and personal identification devices. Regardless of the form of the data security device, the level of security provided is evaluated based on a set of fundamental principles, which include the following:
. IDENTIFICATION AND AUTHENTICATION. Verifies the identity of the authorized users to prevent unauthorized access to proprietary information and resources.
. CONFIDENTIALITY. Involves the encryption of data transmissions so that only the intended recipient can access the information to ensure privacy.
. DATA INTEGRITY. Ensures that data is not compromised or manipulated.
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. NON-REPUDIATION. Prevents the sender of data transmissions from disclaiming or "repudiating" authorship so that the sender cannot deny the occurrence of the transaction.
. AUDIT CONTROL. Retraces information access and facilities use over a particular time period at a systems administration level so an enterprise can monitor and record authorized and unauthorized user activity.
. SECURED SYSTEM ADMINISTRATION. Maintains and controls corporate intranets centrally through file encryption, password maintenance, audit control, certificate and cryptographic key management and device accessibility control.
The process of implementing Internet Protocol Network solutions requires specialized skills lacking in most corporate information technology departments. We provide the technology, products and services necessary for most companies to implement or manage their data security infrastructure.
CRYPTOGRAPHIC TECHNOLOGIES
Cryptography is the process of encoding and decoding electronic messages using mathematical algorithms, or ciphers, to enable the confidential transmission of electronic messages to authorized persons. Digital cryptography is performed using a combination of symmetric ciphers (commonly referred to as symmetric-key or secret-key cryptography) and asymmetric ciphers (commonly referred to as asymmetric key or public-key cryptography), to achieve each of the basic data security elements of identification and authentication, confidentiality, integrity and non-repudiation.
Both symmetric-key and asymmetric-key cryptography use an encrypting and a decrypting key. The decrypting key is user's unique number that is input to the mathematical algorithm, or the cipher, used to encrypt or decrypt the message. In symmetric-key cryptography, the encrypting key and the decrypting key, which is secret, are identical. Thus, to transmit a message, a secure key exchange must be performed so that the key can be shared with the recipient of the message. In asymmetric-key cryptography, the encrypting key--a public key--and the decrypting key--a secret key--are different and thus the public key can be distributed to authorized recipients without risk of security breach. Because asymmetric cryptography allows for wide distribution of the encrypting key, it permits secure communication among a large group of people without requiring manual distribution of the key. Additionally, asymmetric-key cryptography relies on the generation of digital certificates which can be used to provide the user authentication, data integrity and non-repudiation elements of the information security system. However, public-key cryptography requires the use of extremely complicated ciphers, so that encryption of large messages is relatively slow when compared to encryption using secret-key cryptography. Thus, asymmetric-key cryptography is commonly used to protect symmetric keys and symmetric key cryptography is commonly used for bulk encryption.
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IDENTIFICATION AND AUTHENTICATION
Authentication of a user's identity is generally accomplished by passwords. Because passwords are vulnerable to decoding or observation and subsequent use by unauthorized persons, they are less secure than if used with tokens. Tokens
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document are small devices ranging from simple credit card-like objects, rings, proximity cards and plastic keys to more advanced secure tokens, including smartcards, PKI cards and PCMCIA cards. For greater protection, two-factor identification and authentication is implemented by combining tokens with a password or personal identification number to verify authentication of the user. For added security, three factor authentication which consists of token, password and biometric comparisons, can be implemented.
PKI cards are credit card-sized semiconductor plastic cards that contain an embedded microprocessor, memory, a secure operating system and the user's secret key, password and digital certificates. PKI cards have significant advantages because of their ability to perform basic cryptographic functions on the card itself rather than on the computer, thus reducing the risk that a breach of security on the computer will lead to the unauthorized release of proprietary information. Through the use of PKI cards, E-mail messages, purchase orders, credit card numbers, videoclips, data inquiries and other confidential transmissions are secured as they are sent and therefore can be opened only by the intended recipient.
PCMCIA cards are parallel computer peripherals similar in size to a credit card, though thicker, which contain multiple microprocessor chips. PCMCIA cards have greater storage capacity, higher data exchange rate and greater processing power than conventional smartcards and therefore are capable of performing advanced cryptographic functions that cannot be performed on a conventional smartcard. These advanced functions allow for use of more powerful algorithms and thus provide for a greater overall level of security through the use of PCMCIA cards.
We are currently leading a joint effort with Atmel Corporation under a contract with the National Security Agency to develop Forte, an ultra fast 32- bit RISC microprocessor. We are embedding the Forte chip into our new Forte PKIcard, which we expect will be the world's fastest and most cryptographically advanced PKI card. We expect that Forte will provide PCMCIA level performance at a price competitive with advanced smartcards. Further, Forte is being designed to be International Standards Organization compliant and therefore able to be used in conventional reader/writers.
PKI DIGITAL CERTIFICATES
The basic element of PKI, a cutting-edge development in the information security field, is the digital certificate. Digital certificate technology provides a highly advanced form of authentication and secure key exchange. PKI digital certificates are specially prepared software files through which the sender can digitally sign a message with a unique identification code. The recipient of the message can authenticate the identity of the sender and verify the integrity of the data through the use of a trusted third party known as a certificate authority by
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obtaining the sender's public key from the certificate digitally signed by the certificate authority. Furthermore, the uniqueness of the certificates provides for non-repudiation, which prevents the sender from denying that it sent the message and which is not available with less sophisticated techniques. With the development of secure-token technology, digital certificates can now be incorporated into smartcards, PKI cards and PCMCIA cards to provide an information security system that provides two-factor identification and authentication or three-factor identification and authentication with the incorporation of biometric technology.
Biometric technology utilizes fingerprints or other unique characteristics of an individual to serve as a digital identification. The use of digital certificates is expanding rapidly across the Internet. In fact, several states now consider digital signatures contractually binding and there is a growing acceptance within the federal government to effectuate transactions through the use of digital certificates.
SYSTEMS INTEGRATION AND NETWORKING SOLUTIONS INDUSTRY
In recent years, there has been an increasing demand for open system approaches designed to create interoperability among commercial off-the-shelf computer software and hardware products manufactured by different suppliers. In addition, excessive development costs and the rapid pace of technological change have led both governmental and commercial customers to demand more flexible systems created by adapting readily-available commercial off-the-shelf software and hardware.
The emergence of the rapidly developing Internet protocol-based network technologies in the 1990s has further fueled the demand for network computer systems. Although information technologies, secure data transmissions, and data encryption have long been in use in the military intelligence arena, recent technological advancements in computer hardware and software have now made these applications economically viable for use by private companies. This has given
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document rise to the need for specialized expertise in the areas of local and wide area network design and installation, network management and operation and network security, using new and complex information technology hardware and software products. Typically, the design and implementation of these systems in both commercial enterprises and government agencies also involves the resale of the hardware and software required for the system to the customer.
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BUSINESS
OVERVIEW
Litronic provides professional Internet data security services and develops and markets software and microprocessor-based products needed to secure electronic commerce and communications over the Internet and other communications networks based on Internet protocols. Litronic's primary technology offerings utilize PKI, which is the standard technology for securing Internet-based commerce and communications. PKI helps ensure the integrity and privacy of information being transmitted and verifies the identity, authenticity and authority of the sender and the recipient of that information. To increase sales capacity for its proprietary products and to capitalize on opportunities in the rapidly growing Internet security market, simultaneously with the closing of this offering, Litronic is acquiring Pulsar, a network integration solutions company that specializes in deploying large-scale network solutions to organizations in the commercial and government sectors.
STRATEGY
We believe that significant market opportunities exist due to the increasing prevalence of electronic communication resulting from advancements in Internet and electronic commerce technologies. These opportunities are expected to create a primary need for PKI. Thus, we intend to pursue a strategy of growth which is designed to capitalize on the market opportunities and the competitive advantages we believe will result from the Pulsar acquisition. Key elements of our long-term business strategy include:
. INCREASING INTERNET MARKET PENETRATION. We intend to capitalize on Pulsar's existing and significant client base and sales and marketing infrastructure to broaden and accelerate the market penetration of our comprehensive data security product offerings. In our experience, large commercial accounts frequently seek to secure total integrated network security solutions from a limited number of suppliers. We intend to utilize our brand recognition in the Internet Protocol Network security market and Pulsar's network implementation expertise and integration capabilities to support our efforts to gain greater market penetration.
. INCREASING MARKETING OPPORTUNITIES. The creation of a larger marketing and service organization, a higher market profile and greater financial strength is expected to generate greater opportunities for marketing our products in the U.S. and internationally.
. MAINTAINING TECHNOLOGICAL LEADERSHIP IN INTERNET PROTOCOL-BASED NETWORK SECURITY. Through our industry-recognized research and development capabilities, we intend to upgrade and enhance our existing security products and develop new products to meet the expanding market's continually evolving requirements, technologies and standards. Enhanced versions of ProFile Manager and
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Maestro are expected to be released in the third quarter of 1999. We believe that our research and development capabilities and the combined expertise of our technical staff position us to respond quickly and effectively to technological change, increased competition and market demands.
. EXPANDING PROFESSIONAL INTERNET PROTOCOL-BASED NETWORK SECURITY SERVICES. We intend to provide our customers with a full range security services, including security policy assessments and evaluations, custom software development, integration and maintenance for the Internet and other Internet protocol based communications network.
. EXPANDING AND LEVERAGING STRATEGIC ALLIANCES. We intend to maintain and leverage existing strategic alliances and develop new strategic alliances with vendors with complementary technologies, products and services to maximize sales and market development opportunities.
. STRATEGIC ACQUISITIONS. To the extent opportunities arise, we will
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document seek to acquire other technologies, product lines and businesses which complement our products.
. INCREASING SALES PER CUSTOMER. We will seek to increase average sales per customer based on our enhanced ability to offer system integration services in addition to our suite of data security products.
. MINIMIZING RISK OF SALES AND SERVICE DELAYS. The unavailability of skilled professionals in the information technology and Internet security solution outsourcing and integration sectors has in the past caused companies with advanced proprietary technologies to experience sales and service delays. By bringing together our research and development staff and Pulsar's existing sales and technical personnel and procedures, we aim to minimize the risk of these delays.
. INCREASING INTERNATIONAL SALES. We will seek to generate additional sales in foreign markets by establishing a network of international distributors and value-added resellers. The U.S. government has recently relaxed the export restrictions for our ProFile Manager, NetSign and other strong encryption products. These products may now be exported without a license to most countries for use by banks, online merchants, healthcare, insurance organizations and overseas subsidiaries of U.S. companies. To capitalize on these opportunities, we are in the process of building or have built relationships with distributors and resellers with computer security expertise in these market sectors:
. we have appointed distributors in Japan and Spain;
. we are negotiating with potential distributors and resellers in
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Europe, Africa and Asia; and
. we intend to appoint a director of international sales who will be responsible for the management of our international distributor network.
In addition, we expect to experience the following synergistic benefits as a result of our acquisition of Pulsar:
. EXPERIENCE OF MANAGEMENT, KEY PERSONNEL AND CONSULTANTS. We believe the added depth, breadth and experience of Pulsar's management team, key employees and consultants enhances our ability to successfully implement our business strategy.
. COMPREHENSIVE DATA SECURITY PRODUCTS AND SERVICES OFFERING. We believe we can satisfy the comprehensive requirements of enterprises through the combination of our open-architecture, open-platform, open- token and algorithm-independent technologies and products and Pulsar's networking solution services. We believe our ability to offer synergistic products and services distinguishes us from other PKI information technology solution providers by enabling us to provide comprehensive information security systems rather than addressing only selected aspects of customers' data security needs.
. SOLUTIONS ADDRESSING THE KEY ELEMENTS OF INTERNET DATA SECURITY. Unlike other integrators that rely on reselling of products produced by other vendors to respond to the needs of an enterprise, we develop, manufacture and market many of the applications, software, cryptographic libraries, readers/writers and tokens that are required to create comprehensive token-based PKI security solutions that address the key data security elements of: identification and authentication; confidentiality; data integrity; non-repudiation; audit control; and system administration.
Additionally, because our applications are open standards, we can integrate products and services of other vendors into our products to enhance our solutions capability.
INTERNET DATA SECURITY PRODUCTS
GENERAL
Our Internet data security products provide the highest level of commercially-available security for secure E-mail, secure file transport, file protection, remote access, authentication and authorization in an open multi- platform standards-based framework. The foundation of our Internet data security products is our extensive cryptographic library and device drivers supporting numerous different operating system platforms and token management systems which enable users to seamlessly integrate token-based security
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document enhancements into existing networking
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environments or into newly designed and implemented networks. Our products can also be used by software developers to add token-based information security to applications such as browsers, firewalls, E-mail systems, database management systems and other client/server applications.
Our data security products are designed with an open architecture, so they can operate independently of:
. algorithms -- the security products are designed to use different suites of algorithms depending upon the application requirements, for example, military or banking and finance.
. platforms -- the security products may be used with many different computer types and operating systems, for example, Windows, UNIX, and MacIntosh.
. applications -- the security products may be used with various software applications, for example, e-mail, e-commerce, database systems or word processors.
. tokens -- the security products function with various types of tokens, for example, software tokens, smartcards and PC cards.
As a result of this open architecture, these products are compatible with virtually all commonly used network hardware. Algorithm independence allows our products to be tailored to numerous encryption algorithms through software selection. As a result, our libraries, drivers and security devices are compatible with a variety of encryption algorithms, and popular software applications and operating systems. We develop and embed these cryptographic technologies in a multitude of devices and tokens, including smartcards, PKI cards, PCMCIA cards, embedded industry standard architecture (ISA) and peripheral component interconnect (PCI) bus cards. We are also working with other companies to implement use of PCMCIA cards, PKI cards and smartcards to support biometric technologies such as fingerprint and voice recognition. These products provide the added protection of a security token utilizing public key cryptography, key exchange techniques and electronic signatures on most popular operating systems and hardware platforms. In addition, our technologies permit functions to be scaled as performance and pricing requirements dictate.
INTERNET APPLICATION SOFTWARE
NETSIGN AND NETSIGN PRO. These products are software adapters that integrate smartcards and digital certificate technology to enhance security in software systems designed to provide electronic commerce, E-mail, Internet access, file access and world-wide-web browsers such as Netscape Communicator and Microsoft Explorer. NetSign and NetSign PRO software products are bundled with a smartcard reader/writer and smartcards. NetSign PRO has the added security feature of file encryption capabilities and other security utilities.
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PROFILE MANAGER. ProFile Manager is a complete, stand-alone, PKI solution for the management of token-based security systems from initialization to secure backup and recovery. For the recovery of token-based information, ProFile Manager provides an optional integration with a secured database of private keys and other user identification information and the use of third-party certificate authorities. ProFile Manager integrates with NetSign, NetSign PRO and other token-enabled products to provide a complete solution for an enterprise's security needs, including secure Internet access, digitally signed and encrypted E-mail, desk-top file encryption and secure remote network access.
INTERNET CRYPTOGRAPHIC API DEVELOPER TOOLKITS
CRYPTOS SDK AND CRYPTOS SDK+. CryptOS SDK products are cryptographic APIs that allow application developers to use off-the-shelf or custom application software to integrate smartcard technology into existing systems, thus adding hardware-strength security to software-only systems. CryptOS SDK is bundled with a smartcard reader/writer and smartcards. CryptOS SDK+ has additional tools for Java programming.
MAESTRO. Maestro, a product we have only recently introduced to the market, is a multi-protocol cryptographic library that enables software developers to incorporate secure token-based, symmetric and asymmetric key cryptography into their application software. Maestro is a multi/concurrent access, cross-platform system that supports multiple types of tokens such as smartcards, PCMCIA cards and cryptographic algorithms. Coupled with token
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document reader/writers, Maestro supports devices over commonly-used interfaces, including keyboard, serial, small computer system interface (SCSI), parallel port and Universal Serial Bus. Maestro currently supports two commonly used cryptographic interface protocols. We are developing additional protocol adapters to expand the functionality of Maestro. Maestro is compatible with Windows 95, 98 and NT operating systems as well as all popular UNIX platforms.
TOKENS
ISO SMARTCARDS. We offer a family of off-the-shelf international standard organization (ISO) standard smartcards ranging from storage-only cards to cards containing cryptographic capabilities.
MONIKER, PC-CRYPTOCARD. We also offer Moniker, a Fortezza standard PCMCIA card. The Fortezza standard PCMCIA cards are commonly used by the Department of Defense, as well as by other governmental and commercial entities.
FORTE PKICARD. We are in the process of developing a next generation PKI card, the Forte PKIcard, in cooperation with Atmel Corporation. Forte is a 32- bit RISC microprocessor which is being designed with a high speed Universal Serial Bus interface in addition to the ISO interface. Forte is also to be designed with a larger storage capacity and processing speed than existing smartcards. The Forte PKIcard is expected to be manufactured in the U.S. and we anticipate shipments to begin in late 1999.
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OTHER TOKENS. Because our products are open-architecture, open-platform, open-token, algorithm and API-independent, we offer third-party tokens, such as PCMCIA cards, smartcards, rings, proximity cards and plastic keys and other commercially available tokens, for use with our reader/writers and application software.
TOKEN READER/WRITERS
A token reader/writer is a hardware component that electronically reads the content of a smartcard, PCMCIA card, or PKI card. We manufacture several different types of reader/writers. Following is a brief description of their features.
SERIAL AND KEYBOARD PORT SMARTCARD AND PKI CARD READER/WRITERS. We sell our reader/writers as a security product component or bundled with other products such as ProFile Manager, NetSign and/or CryptOS SDK to provide token- based data security solutions.
We manufacture and sell compact, hand-held smartcard reader/writers that interface through the RS-232 serial port of a PC or workstation. The Series 215 and 220 reader/writers are compatible with Windows 95, 98, NT and UNIX and MacIntosh operating systems. The Series 220 reader/writer can optionally be connected through the keyboard port which provides the added security of a protected personal identification number, or PIN, path. With a protected PIN path, the password authentication is intercepted by the reader/writer thus preventing a hacker from implanting an unauthorized program in the PC to intercept the password. We offer a Series 230 reader/writer which is integrated into a keyboard, and also offer a Series 410 reader/writer which connects to a computer through its PCMCIA slot.
ARGUS 300. The ARGUS 300 consists of a tamper-resistant ISA board and external reader/writer and is connected to the keyboard. The ARGUS 300 incorporates DES encryption technologies and offers additional security features such as boot protection, electronic commerce security and protected PIN path directly through the board rather than through an external device that might be tampered with by an unauthorized user. The ARGUS 300 is validated for electronic signature by the National Institute of Standards and Technology (NIST), the U.S. Treasury Department and General Accounting Office.
PCMCIA CLIENT READER/WRITER. We offer a series of single-and dual-socket PCMCIA card reader/writers that interface via various ports such as SCSI (internal and external reader/writer), ISA bus (internal reader/writer), PCI bus (internal reader/writer), Universal Serial Bus and parallel port (external reader/writer). These reader/writers incorporate our proprietary device drivers which provide the interface between the reader/writer and its application software such as Maestro and third-party application software.
CIPHERSERVER. We offer a reader/writer that contains sockets for up to eight PCMCIA cards, is used on the enterprise's server side and incorporates the device drivers and other technologies of our other PCMCIA readers. CipherServer interfaces with the host server to enable the host server to provide rapid/simultaneous processing of cryptographic functions received from numerous clients.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document OTHER CUSTOM-DESIGNED SECURITY PRODUCTS
SECURE PCS
We offer a family of secure, year 2000 compliant, servers which are based on a two-state workstation technology that operate in either the secured state or the public state. A transition between the two states causes all temporary data in the volatile memory to be fully erased. This process precludes an unauthorized subsequent user from accessing the classified information that would otherwise be resident in the system's memory.
MANAGED FIREWALL AND VIRTUAL PRIVATE NETWORKS SOLUTIONS
We offer secure architecture based firewall and virtual private networks gateway technology using intrusion detection software for high data capacity and scalable security solutions. These software and hardware systems provide for multi-user remote administration, and integrated management of multiple security policies and firewalls.
NETWORK SECURITY AND MANAGEMENT TOOLS
Our network security and management tools are a scalable, comprehensive collection of network security and management solutions assembled into an integrated security suite of hardware and software. The tools include a multi- tiered approach to virus protection covering the client, server and Internet gateway through a combination of encryption, firewall and virtual private networks technologies. These tools protect networking systems against attacks, and compromise and loss, while maintaining the integrity of business functions and data. These products ensure full network performance with a proactive approach by fixing problems, planning growth and optimizing functionality and reliability.
THE ASSURE TECHNOLOGY
The Assure technology which we will seek to purchase, subject to the satisfactory completion of our due diligence, was developed to create information security products to protect information in a client/server network operating system with a high level of security. The Assure technology was designed to equip client/server networks with a proprietary encryption process to encrypt data before it is transmitted, generate unique message authentication codes and encode the data upon receipt by an authenticated user. Therefore, all data transmitted through the network would be in a encrypted format, rendering it unintelligible to recipients who do not have a proprietary decrypting key.
A product based on the Assure technology, Assure EC4.11, was evaluated by the National Computer Security Center in connection with an early version of Novell's 4.11 network operating system. Assure EC4.11 received a Class C2 rating as a result of this evaluation, but no product based on the technology was ever marketed. If we successfully purchase the Assure technology, we intend to use a portion of the proceeds of this offering
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to upgrade the technology and complete the development of products based on the technology.
PROFESSIONAL DATA SECURITY SERVICES
We offer comprehensive networking solutions with a particular emphasis on designing, developing, implementing, supporting and maintaining networks that provide for a high level of data security. We develop and implement complete turn-key networks or enhance or expand existing networks, as the customer requires.
Our services include:
. strategic consulting, including site risk and requirements analysis and design;
. custom design and development;
. project management;
. construction, installation and implementation;
. on-site or remote system support, maintenance and repair; and
. on-site system management.
We take a "needs analysis" approach to the design and development of our solutions for our customers by evaluating their existing infrastructure, architecture and technologies to optimize the performance of their existing
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document system and augment their systems as necessary to meet their changing requirements. Project responsibilities typically require the integration of access control, intrusion detection and biometric validation.
Because of our expertise designing and implementing systems providing for robust security, our solutions address the networking and data security needs of our customers, including:
. Internet access and security;
. secured intranet/extranet capabilities;
. enterprise security procedures and administration;
. secured critical private network and remote dial-in network capabilities;
. secured distributive applications;
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. open-systems migration of data;
. information security communication services; and
. artificial intelligence technologies.
We provide our network solutions through the implementation of the latest technologies, including high speed baseband and broadband media, fiber optics, hard wired connect systems, and wireless and satellite transmission systems. We also provide information technology outsourcing services for our customers, including ongoing management of network systems. We deliver our professional services on either fixed-price delivery or time-based delivery modes through our data security group, which provides consulting and integration services and our enterprise information group, which provides network design, implementation and management, legacy systems migration, and systems configuration and evaluation.
Our staff has specific expertise in the following areas of networking systems:
. INTERNET ENTERPRISE NETWORK CONSULTING: As computer networks become more complex the assistance of knowledgeable network professionals is critical for maximum performance. Our network consulting staff can help organizations realize their business goals and objectives.
. NETWORK MANAGEMENT: Today's network managers must cope with a maze of network protocols, configuration options and computing platforms. Our network management staff supports information systems departments in their effort to manage these diverse networking platforms by assisting with the training, configuration and implementation of network management systems and products.
. REMOTE COMPUTING: As companies increasingly decentralize their business functions, they must consider connectivity options for remote users. Our remote computing team can effectively deliver the most cost-effective and reliable methods to allow users access to corporate systems. Whether a business requires dial-in dial-out capability or Internet access, we can provide a complete solution that incorporates training and implementation.
PRODUCT RESELLING
Historically, a substantial portion of our product resale revenues were derived from sales of low-end, low-margin computer and network security products. We are increasingly shifting our focus in the reseller market, primarily in the government information technology segment, to sales of high- end, high-margin specialized computer and network security products and customized configurations of these products.
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Examples of these high-end, high-margin computer and network security products include:
. INTRUSION DETECTION SOFTWARE - used to detect unauthorized access, and identify the source of the access, within a network. These products include Net Ranger and PIX.
. FIREWALLS - custom designed software and hardware configurations installed into a network to prevent unauthorized access from outside the network. We offer high-end firewall solutions from leading
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document vendors, including Lucent Technologies, Inc., Network Associates, Inc., Cyberguard Corporation, Cisco Systems, Inc., and Bay Networks, Inc.
. NETWORK HARDWARE COMPONENTS - servers, routers, hubs and switches configured to the customer's networking requirements. We offer components manufactured by leading vendors, including Cisco Systems, Inc., Bay Networks, Inc., Hewlett-Packard Company, Bell Computers, International Business Machines Corp., Lucent Technologies, Inc. and Sun MicroSystems, Inc.
. ANTI-VIRUS SOFTWARE - high-end software programs installed at server level to prevent viruses from entering the network, and client-level software programs to prevent virus corruption to client-server applications.
. VIRTUAL PRIVATE NETWORKS - a secure point-to-point connection over the Internet through which encrypted messages can be transmitted to protect communications between remote locations.
. DATA SECURITY PRODUCTS - access control products, including our own and third-party APIs, device drivers, token reader/writers and tokens.
We believe that focusing on these high-end, high-margin products will lead to higher rates of customer retention. This is because of the complex nature of the product configurations, which results in customers' making purchasing decisions based on factors other than simply the lowest price. Further, because the products are highly customized, we are not required to make substantial investments in inventory.
After the offering, we will, where appropriate, include our own data security products within our product configuration solutions.
CUSTOMERS
Our customers represent a wide range of commercial enterprises, including financial, telecommunications, healthcare and information service companies, airlines, automobile manufacturers, as well as Federal, state, local and foreign government agencies. We believe significant cross-marketing opportunities exist with the integration of Pulsar's customer base.
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Our customers include:
. Netscape Communications . Federal National Mortgage Corporation Association
. Walt Disney Company . S.W.I.F.T.
. Nippon Telephone and . Executive Offices of the Telecommunications Data President of the United States Corporation
. American Express Company . U.S. Army Corps of Engineers
. Bank of America, N.A. . Lockheed Martin Corporation
. National Security Agency . Booz Allen & Hamilton Inc.
. Federal Communications . Other U.S. Government Commission departments and agencies
. Deloitte & Touche LLP
CUSTOMER SERVICE AND SUPPORT
We believe that customer service and support is critical to retaining existing customers and attracting prospective customers. Our customer service and support staff consists of 16 persons, including engineers and technical support personnel, and works closely with customers and prospective customers to provide comprehensive service and support for our products and systems.
We provide enhanced customer support by maintaining a toll-free customer service line, and a two-tier support system. The first tier consists of help desk support personnel responding to phone and mail requests for service and accessing customer information and a problem database for solutions. For more sophisticated problems, second tier support is provided by systems technical support staff.
SALES AND MARKETING
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We market our products and services through the Internet, our direct sales forces, third-party distribution channels, including systems-integrators, value- added resellers and original equipment manufacturers, strategic alliances and international distributors. We intend to devote significant resources to marketing and business development activities to expand our business to additional distribution channels.
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DIRECT MARKETING EFFORT
As of April 1, 1999, we employed a direct sales and marketing force of 31 individuals located in offices in California, the Washington, D.C. area and Atlanta, Georgia to market our products and services to industry and vertical market segments, including e-commerce, financial, telecommunications, healthcare and information services companies and federal, state, local and foreign government agencies. Our sales force is responsible for soliciting prospective customers and providing technical advice and support with respect to our products and services. Additionally, we use telemarketing efforts to target commercial accounts and federal government agencies. We seek to achieve greater vertical market penetration by using direct sales personnel with significant market expertise, as well as consultants with established relationships in the commercial marketplace.
Following the closing of this offering, we intend to expand our direct sales force to increase the number of representatives located in our California, Georgia and Washington, D.C. offices. We may also open direct sales force offices in other geographic locations as we determine our clients' needs and our market opportunities.
INDIRECT MARKETING EFFORT
An important component of our sales strategy is the development of indirect sales channels such as systems integrators, value-added network service providers and original equipment manufacturers. Currently, we use these indirect sales channels to augment the efforts of our direct sales forces.
We also use the services of third-party consultants with established relationships and contacts with prospective customers to which we would not otherwise have access. As part of our expansion strategy, we will seek to develop relationships with additional third-party sales channels.
STRATEGIC ALLIANCES
We plan to increase our vertical market penetration by continuing to develop strategic alliances with other companies in the data security and network integration industries. We have developed significant strategic alliances with companies in an effort to:
. incorporate our products into third-parties' products;
. jointly develop products and services;
. conduct joint research and development efforts;
. jointly conduct proposals and presentations for products and services and reseller arrangements.
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These alliances assist us in expanding our marketing and technical capabilities and are intended to increase the distribution and market acceptance of our Internet, intranet and extranet security products and services.
We believe that strategic alliances allow us to cost-effectively integrate third-party products into our product offerings to provide our clients with customized information technology solutions. Our strategic alliances currently include the following:
. NETSCAPE AND MICROSOFT - we provide enhanced E-mail security features to their browser programs through integration of our NetSign product lines.
. VERISIGN - we have a marketing agreement with VeriSign and act as VeriSign's recommended PKI card partner.
. ATMEL CORPORATION - we have an alliance with Atmel Corporation in which we are jointly developing Forte, an advanced microprocessor, which we are embedding in our next generation PKI cards, the Forte PKIcard.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document . KEYTRONIC - Keytronic and our company sell versions of NetSign bundled with the Keytronic keyboard, which currently incorporate an integrated PKI card/smartcard reader and will incorporate our Forte PKIcard reader.
. RSA DATA SECURITY - we have a distribution license agreement with RSA which allows us to incorporate RSA technology into our products.
. DATACARD - Datacard serves as an official distributor of our PKI card products and integrates our NetSign and ProFile Manager and CryptOS products into our PKI card printers.
. SCM MICROSYSTEMS, INC. - we engage in cooperative marketing and selling of SCM hardware produced with our software.
Additionally, Pulsar has formed alliances with a number of equipment manufacturers to generate leads for its technology product sales, including Lucent Technologies, Inc., Photon Vision Systems LLC, Northern Computers, Inc., Hewlett-Packard Company and International Business Machines Corp. We expect these alliances to generate qualified leads for our sales force to contact and close.
SALES TO THE GOVERNMENT INFORMATION TECHNOLOGY MARKET
The government information technology market is generally characterized by highly-structured procurement rules and procedures, large contracts, a relatively long sales cycle, significant barriers to entry and low collection risks. In response to these characteristics and requirements, a number of avenues, such as General Service Administration schedule
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contracts, blanket purchase agreements and bidding procedures, have been developed to access this market.
The General Services Administration, which is the central procurement agency for the U.S. government, negotiates schedule contracts. Government agencies and other authorized purchasers, although not required to do so, may purchase goods and professional services under GSA schedule contracts at predetermined price ceilings, terms and conditions. GSA schedule contracts are awarded on the basis of a number of factors, the most important of which are compliance with applicable government regulations and the prices of the products to be sold. A blanket purchase agreement, or BPA, is a simplified but non- mandatory, fixed-price,indefinite delivery-indefinite quantity, contract for the government to purchase products, at pre-negotiated terms and conditions. Purchases made under BPAs are often paid for with a government-issued credit card. Federal government agencies are authorized to enter into BPAs with GSA schedule holders. The GSA-authorized BPAs incorporate many terms and conditions of GSA schedule contracts, often at lower prices than available on the GSA schedules.
A significant portion of the purchases of computer products and services by the federal government are made under contracts or purchase orders awarded through formal competitive bids and negotiated procurements. Substantially all of these bids are awarded on the basis of a number of factors, including the best value to the government, which, depending on the bid, can be a combination of price, technical expertise, past performance on other government contracts. Major procurements can exceed millions of dollars in total revenue for a reseller, span many years, and provide a purchasing vehicle for many agencies. In addition, networking products are purchased by the federal government through open-market procurements. These procurements are separate and apart from GSA schedules, and include simplified acquisition procedures, requests for quotes, invitations for bids and requests for proposals. Most purchases in the state and local government market are made through individual competitive procurements. State and local procurements typically require formal responses and the posting of bid bonds or performance bonds to ensure complete and proper service by a prospective bidder. Each state maintains a separate code of procurement regulations that must be understood and complied with by entities selling products to the state.
We are on most government bid lists relevant to our product offerings and respond with proposals to hundreds of bid solicitations each year. In addition, our marketing employees actively prepare bids for federal, state and local government agencies for open market procurements. After the closing of this offering, we intend to expand our bid proposal unit to compete and capture additional projects submitted for proposal.
ADVERTISING
Our marketing efforts include maintaining a web site, Internet advertising, including hot links with other web sites, direct mail, public relations, events, sales tools, broadcast messaging, telemarketing and corporate marketing materials. We believe that our future business activity depends in part on our
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document marketing and sales through the Internet. Our website describes
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Our public relation efforts are designed to target the appropriate press coverage and consist of press kits, targeted media lists and press releases. These efforts are designed to complement our sales and marketing efforts.
TRADE SHOWS AND PRESENTATIONS
We attend and exhibit our products and services at trade shows in the U.S. and internationally each year in an effort to increase our market exposure. We intend to continue to attend trade shows as well as to make joint presentations with strategic partners to prospective customers relating to products and services.
SUPPLIERS
Some of the components incorporated into our Internet data security products are produced by other vendors. We also integrate third-party products and components into the networks we design and develop for our customers. To maintain quality control and enhance working relationships, we generally rely on multiple vendors for these products. However, some of these products are produced or sold only by a single supplier, thus presenting a risk that they may not be available on commercially reasonable terms in the future or at all. While we believe that alternative sources of supply could be obtained, our inability to develop alternative sources if, and as required, in the future could result in delays or reductions in product shipments that could adversely affect our business.
RESEARCH AND DEVELOPMENT
We conduct extensive research and development efforts which focus on the development of cryptographic PKI software and hardware products that can be readily integrated and adapted to the expanding requirements of the Internet, intranets and extranets. After the closing of this offering, we expect to devote substantial additional research and development resources to enhance our data security product line.
Our current research and development efforts include:
. Expanding Maestro to offer additional application program interfaces, including Microsoft's CAPI (a cryptographic API) for Windows 95/98 and Windows NT; further, expanding the suite of tokens supported by Maestro;
. Expanding the capabilities of ProFile Manager to provide certificate exchange features with additional third-party certificate authorities and increased capability for the PKI enterprise manager;
. Developing Forte, an advanced 32-bit RISC microprocessor which we are embedding in our Forte PKIcard. We expect the Forte PKIcard will be an ISO
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standard smartcard with greater flexibility and a higher degree of processing power than existing PKI cards, due in part to the inclusion of a Universal Serial Bus interface on-board the microprocessor chip. Given that Forte is an advanced security chip that will provide advanced security features, we expect to be able to embed it in a variety of devices, including PC mother boards;
. Developing series of Universal Serial Bus interface reader/writers;
. Developing technologies to incorporate biometric technologies into Litronic PKI products to provide further advanced identification and authentication protection;
. Expanding the security features of applications programs such as NetSign and NetSign PRO; and
. Developing a version of the ARGUS 300 for the PCI bus while retaining its validation by the NIST. The ARGUS 300 is currently an ISA bus security product that has been validated by the NIST for a security level approved for digital signature operations. Newer computer designs now have the PCI architecture. The PCI version of the ARGUS
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 300 is being designed to enable the NIST to extend the certification to the new PCI design without a complete new laboratory validation process.
The process of developing our products and services is extremely complex and requires significant continuing development efforts. There is a risk that we will not successfully develop and market new products or product enhancements that respond to technological change and evolving industry standards and customer requirements in a timely manner.
As of April 1, 1999, our research and development staff consisted of 25 employees, of whom 22 were engineers. Approximately 90% of these engineers were engaged principally in the development of software, including cryptographic libraries and device drivers. Our retention rate for our research and development staff over the past three years is 80%. We believe that our ability to attract and retain qualified development personnel is essential to the continued success of our development programs. The market for these personnel is highly competitive and our development activities could be adversely affected if we are unsuccessful in attracting and retaining skilled technical personnel.
During the years ended December 31, 1996, 1997 and 1998, our net expenses for research and development were $752,000, $1.2 million and $1.3 million. We have allocated $6.2 million of the proceeds of this offering for research and development activities.
COMPETITION
We compete in numerous markets, including;
. Internet and intranet electronic security;
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. access control; . token authentication; . smartcard-based security applications; . electronic commerce applications; . systems integration; . product reselling; and . government information technology markets.
The markets for our products and services are intensely competitive and are characterized by rapidly changing technology and industry standards, evolving user needs and the frequent introduction of new products. We believe that the principal factors affecting competition in our markets include:
. product functionality; . performance; . flexibility and features; . use of open standards technology; . quality of service and support; . company reputation; and . price.
We face significant competition from a number of different sources. Many of our competitors are more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than we have. One of our significant competitors is Microsoft Corporation, which has recently announced its intention to begin making smartcards. Some of our other significant data security competitors include:
. International Business Machines Corp. . Motorola, Inc. . RSA Data Security, Inc. . Network Associates, Inc. . Secure Computing Corporation . Rainbow Technologies, Inc.
Some of our competitors for systems integration and product reselling include:
. BTG, Inc. . Inacom Corporation . Government Technology Services, Inc.
In addition there are several smaller or start-up companies with which we compete from time to time. We also expect that competition will increase as a result of consolidation in the information security technology and product reseller industries. We may be unable to compete successfully in the future with our competitors, which may adversely affect our business.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document INTELLECTUAL PROPERTY
We depend substantially on our proprietary information and technologies. We rely on a combination of trademark, patent, copyright and trade secret laws, employee and third-party non-disclosure agreements, technical measures and other methods to protect our software products and other proprietary technologies and know-how. We also rely on standardized license agreements that are not signed by the end user to license our products and, therefore, may not always be unenforceable.
We currently have two patents registered with the U.S. Patent and Trademark Office and three patent applications pending with the U.S. Patent and Trademark Office that cover aspects of data security technology. Prosecution of these patent applications and any other patent applications that we may subsequently determine to file may require the expenditure of substantial resources. The issuance of a patent from the filing of a patent application is a lengthy process. Our technology may become obsolete while our applications for patents are pending. Further, any pending or future patent may not be granted, and any future patents may be challenged, invalidated or circumvented and the scope of any patents may be reduced. The rights granted to us through our patents may not provide us with any advantages. We have not pursued any patent protection outside the U.S. for any technology.
Our technical measures and non-disclosure agreements may not be adequate to prevent misappropriation or provide any meaningful protection for our proprietary technology in the event of misappropriation. Further, others may independently develop substantially equivalent or superior technologies or duplicate any technology we develop, or our technology may infringe on the patents, copyrights or other intellectual property rights owned by others.
We may also be at risk when we enter into transactions in countries where intellectual property laws are not well developed or are poorly enforced. Legal protection of our rights may be ineffective in foreign markets, and technology manufactured or sold abroad may not be protectable in jurisdictions in circumstances where protection is ordinarily available in the U.S.
We believe that, due to the rapid pace of technological innovation for network security products, our ability to establish, and if established, maintain a position of technological leadership in the industry, is dependent more upon the skills of our development personnel than upon legal protections afforded our existing or future technology.
Because our products are designed with an open architecture and are algorithm-independent, they can be utilized with a variety of encryption algorithms. Some algorithms are in the public domain and can be incorporated into our products at no charge. To the extent that a customer desires to incorporate a proprietary algorithm into a security solution, we or the customer must obtain a license from the algorithm owner. Depending on the algorithm and its owner, the license fee may be a flat fee, a per unit royalty or a combination of the two.
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We are developing Forte under a task order issued under a contract with National Security Agency. The contract incorporates the Department of Defense's standard licenses for technical data and computer software, commonly known as the data rights clauses. Data rights clauses are only applicable to data or software actually delivered to the federal government under a contract. If the data rights clauses were applicable to our agreement with the National Security Agency to develop Forte, one of the data rights licenses, commonly called a government purpose rights license, would permit the federal government to create second sources of supply of the Forte technical data and source code for itself without paying us royalties. The government purpose license clause would not authorize the Federal government to create competitors to us in the commercial market. We do not believe the data rights clauses generally, or the government purpose license specifically, apply to Forte because our contract with the National Security Agency does not provide for the delivery of Forte to the federal government. The task order provides that the National Security Agency will obtain detailed design information about Forte.
GOVERNMENT REGULATION
Because we sell our products internationally, we must comply with federal laws regulating the export of, and applicable foreign government laws regulating the import of, our products. The U.S. government has recently relaxed the export restrictions for our NetSign and ProFile Manager products. However, the federal government may rescind these approvals at any time. Under current regulations these products can be exported without a license to most countries for use by banks, healthcare, insurance organizations and overseas subsidiaries of U.S. companies.
Additionally, we may apply for export approval, on a specific criteria
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document basis, for our future products. Government export regulation for security products is less stringent for products designed for banking and finance, e- commerce, health, insurance and for use by U.S. subsidiaries. We may not receive approval to export any future products on a timely basis, on the basis we request or at all. As a result of government regulation of our products, we may be at a disadvantage in competing for international sales compared to foreign companies that are not subject to these restrictions.
EMPLOYEES
As of April 1, 1999, Litronic employed 64 full-time and four part-time people, including 40 in product management, research, development and support, two in professional services, 14 in field operations including sales, marketing and customer management, and 12 in finance, human resources, business development, legal and administration. As of April 1, 1999, Pulsar employed 61 people, including four in product management, 17 in professional services, 17 in field operations including sales, marketing and customer management, and 23 in finance, human resources, business development, legal and administration. After the closing of this offering, we expect to integrate Pulsar's workforce.
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Our employees are not represented by labor unions. We do not expect that any of our employees will be represented by any labor unions after the closing of this offering. We consider our relations with our employees to be good.
FACILITIES
After the closing of this offering, we will be headquartered in Irvine, California where we currently lease approximately 12,000 square feet of office space for our executive offices with a lease expiring in September 2001 and approximately 1,800 square feet of space in a production and warehouse facility and which has a lease expiring in June 1999. In addition, after the closing of this offering, we will conduct a significant portion of our operations at Pulsar's offices in our 12,700 square foot Lanham, Maryland facility, which we use as office space for our executive offices and as warehouse space, under a lease that expires in 2003.
LEGAL PROCEEDINGS
We are involved from time to time in routine litigation that arises in the ordinary course of business. We are not currently involved in any litigation which we believe will have a material impact on our results of operations, financial condition or liquidity, other than the following:
In the course of its business, Pulsar has been extended credit from several trade vendors for the purchase of supplies, equipment, merchandise and services. Pulsar's accounts for several of these trade vendors have been past due for a significant amount of time. As a result, several of these trade vendors have filed lawsuits against Pulsar seeking to collect the amounts owed by Pulsar. In addition, Prince George's County, Maryland has filed a lawsuit against Pulsar to collect personal property taxes in the amount of $38,500. Aggregate amount claimed under these lawsuits was approximately $1.6 million, exclusive of interest and costs. Pulsar has entered into settlement agreements covering some of the lawsuits and as of April 1, 1999 has paid in excess of $600,000 under those agreements. As of April 1, 1999, the aggregate amount Pulsar owes on claims that have been filed and settled is approximately $250,000. The aggregate amount of claims that have been filed but not settled is approximately $731,000. We intend to use our new term loan and anticipated cash flow from operations to resolve and pay these claims and settlements. See "Management Discussion & Analysis of Financial Condition and Results of Operation."
On January 16, 1998, G2 Resources Inc. filed a complaint against Pulsar in the Circuit Court, Fifteenth Judicial Circuit, Palm Beach County, Florida. G2 claims that Pulsar breached a contract under which G2 agreed to provide services related to the monitoring of government contracts available for bid and the preparation and submission of bids on behalf of Pulsar. The contract provides that Pulsar pay G2 $500,000 in 30 monthly installments of $16,666 and an additional fee of 2% of the gross dollar amount generated by awards. In its complaint, G2 alleged that Pulsar failed to make payments
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under the contract and claimed damages in excess of $525,000 plus interest, costs and attorneys fees. In the course of discovery G2 asserted that its losses/costs arising out of its claim amount to approximately $10.3 million. Pulsar has asserted that G2 failed to perform the services required under the contract and Pulsar filed a claim for compensatory damages, interest and attorneys fees against G2. Classical Financial Services, LLC intervened in the case. Classical claims that G2 assigned its accounts receivable to Classical under a financing program and that Pulsar breached its obligations to Classical by failing to make payments under the contract with G2. Pulsar has asserted
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document defenses to Classical's claim. Pulsar believes that the claims of G2 and Classical against Pulsar are without merit and intends to continue to vigorously defend against the claims. If G2 or Classical were to prevail in this lawsuit, our business and financial condition could be materially adversely affected.
On July 11, 1997, Rudolph Menna filed a complaint against Pulsar and William W. Davis, Sr. in the U.S. District Court for Northern District of Georgia, Atlanta Division. Mr. Menna alleges that he was wrongfully terminated as a Pulsar employee and that Pulsar and Mr. Davis unlawfully discriminated against him on the basis of race and age. Mr. Menna's complaint seeks an unspecified amount of damages including back pay, front pay, benefits, compensatory and punitive damages, interest and attorneys fees. Pulsar and Mr. Davis have filed an answer denying the material allegations in the complaint. Pulsar and Mr. Davis believe that Mr. Menna's lawsuit is without merit and intend to continue to vigorously defend against it. If Mr. Menna were to prevail in the suit our business and financial condition could be materially adversely affected.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table contains information concerning our directors, director nominees, officers, persons who have agreed to serve as executive officers upon the closing of this offering and other key employees, and their respective ages as of April 1, 1999:
Kris Shah is our chairman of the board and chief executive officer. Mr. Shah has been Litronic's president and chief executive officer since he founded the company in 1970. Mr. Shah's career has involved every major aspect of circuit design and chip packaging technology, including research and development, manufacturing, engineering, marketing and strategic planning. Before forming Litronic, Mr. Shah held management level positions at Hughes Aircraft Co., Fiberite Inc. and Bell Industries, Inc. Mr. Shah earned his B.S. and M.S. degrees in mechanical engineering from the University of Southern California in 1962 and 1964.
William W. Davis, Sr. is our president and chief operating officer. Mr. Davis served as Pulsar's president and chief executive officer since he founded the company in 1982. Mr. Davis sits on the advisory boards of IBM, Ingram Micro and Pinacor Corporation. Over the past 16 years, Mr. Davis grew Pulsar into a diversified technology company, specializing in providing network-based information technology services and customized products to Fortune 1000 and government accounts. Before founding Pulsar, Mr. Davis
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held various management positions with several Fortune 1000 companies, including DuPont, Chevron and Occidental Petroleum Corporation. He is the recipient of numerous industry awards, including awards for outstanding leadership and performance from the Government Computer News (1994-1997), Lockheed Martin Corporation and various industry associations. Mr. Davis earned his B.S. in
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document agronomy from Southern University in 1972 and completed advanced executive management programs at Dartmouth University in 1994 and the University of Miami in 1995.
Thomas W. Seykora is our chief financial officer. Mr. Seykora joined Litronic in July 1995 as its chief financial officer. Before joining Litronic, Mr. Seykora was an independent management consultant to companies and financial institutions from 1986 to July 1995. From 1982 to 1986, he served as chief financial officer and senior vice president-finance and operations for Curley Bates Co., a closely held distribution company. Before that, Mr. Seykora worked for KPMG LLP (then known as Peat, Marwick, Mitchell & Co.), most recently as an audit manager. Mr. Seykora also served as an officer, achieving the rank of captain, in the U.S. Marine Corps. He received a B.A. degree in accounting from Minnesota State University.
Robert J. Brich has agreed to serve as our vice president, government marketing and sales, upon closing of this offering. Mr. Brich will be responsible for the development, management and performance of Litronic's networking and data security solutions and services. Mr. Brich has served as executive vice president of technical services of Pulsar since September 1998. From January 1998 to September 1998, Mr. Brich served as president of Infotex Ltd., a developer of data security products. From September 1997 to December 1997, Mr. Brich served as director of business development for SFA, Inc., an engineering services company. Mr. Brich served as executive vice president of Management Systems Applications, Inc., a worldwide information and electronic security provider, from June 1994 to September 1997. Mr. Brich served as senior vice president of SEACOR, an engineering consulting firm from January 1990 to June 1994. Mr. Brich retired as a commander in the U.S. Navy after 22 years of service. Mr. Brich serves as chairman of the board of directors for the Tidewater Center for Technology Access, a community charitable organization. Mr. Brich holds a B.S. in education from East Stroudsburg University, an M.S. from the Naval War College and an MBA from Marymount College. He also attended strategic management curriculums at Wharton School of Business. Mr. Brich is currently a Ph.D. candidate in business and education at Old Dominion University.
Robert J. Gray has agreed to serve as our vice president, product development upon the closing of this offering. Mr. Gray joined Litronic in May 1990. Mr. Gray served as president of Cyphernet, Inc., a division of Codercard, Inc., a data security company, from January 1985 to May 1990. Mr. Gray has also served as president of Genisco Computers Corp., a leading manufacturer of computer graphics and imaging hardware for the computer aided design, image processing and simulation markets. After obtaining his education in meteorology, oceanography and computer sciences from various military schools including the Naval Postgraduate School in Monterey, California, Mr. Gray served as an officer in the
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U.S. Navy for 22 years, specializing in meteorology and computer sciences. During his Naval career, Mr. Gray completed numerous assignments within the Department of Defense, the National Security Agency and the Naval Security Service.
William S. Holmes, has agreed to serve as our vice president, commercial marketing and sales, upon closing of this offering. Mr. Holmes has over thirty years experience in the computer industry. Mr. Holmes joined Litronic in October 1998 as vice president, marketing and sales. From September 1996 to September 1998, Mr. Holmes served as vice president, sales and marketing for Gigatron Software Corporation, a private information management company. From April 1996 to September 1996, Mr. Holmes served as consultant to Novaquest Infosystems Inc., a computer reseller. From October 1985 to April 1996, Mr. Holmes served as vice president, managing director of California Software Products, Inc. From June 1984 to October 1985, Mr. Holmes served as sales manager of Data Logic Ltd. (a subsidiary of Raytheon Corporation). From February 1971 to June 1984, Mr. Holmes served in project management for International Computer Limited in England and South Africa. Mr. Holmes attended Watford College of Technology in England.
Anthony Giraudo has agreed to serve as a director of our company upon the closing of this offering. Since 1986, Mr. Giraudo has worked for Atmel Corporation (and its predecessor, Honeywell), most recently as vice president and general manager. Before joining Honeywell, Inc., Mr. Giraudo worked for NCR Corporation in various positions from 1980 through 1986, his most recent position being director of research and development. Mr. Giraudo served as analog I.C. designer for International Business Machines from 1977 to 1980. Mr. Giraudo received his B.S. in electrical engineering in 1972 and his M.S. in electrical engineering in 1976, both from the University of New Mexico. He also completed the cooperative electrical engineering program at the University of New Mexico from 1970 to 1974.
Matthew Medeiros has agreed to serve as a director of our company upon the closing of this offering. Since February 1998, Mr. Medeiros has served as
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document chairman and chief executive officer of Phillips Flat Display Systems. Before joining Phillips, Mr. Medeiros served as vice president and general manager for the optical polymers group, and as vice president of business development for the electronic materials division, of Allied Signal Inc. from January 1996 to February 1998. Mr. Medeiros served as an executive officer of Radius, Inc., including as its vice president and general manager, MacIntosh systems, and as its vice president operations and information systems, from March 1993 to January 1996. Mr. Medeiros also previously served in executive positions with Radius, Inc., NeXT Computer and Apple Computer, Inc. in which positions he developed an extensive background in personal computer manufacturing, operations and materials management. Mr. Medeiros received his B.S. in business administration, management science and finance from the University of San Francisco.
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BOARD OF DIRECTORS
Our board of directors consists of three classes of directors. Class I, II and III directors serve until our 2000, 2001 and 2002 annual meeting of stockholders. After these initial terms, directors serve until the third annual meeting of stockholders following their election or until a successor is duly elected and qualified. Executive officers are elected by the board of directors to serve until their successors are elected and qualified. Mr. Medeiros will serve as a Class I director, Mr. Giraudo will serve as a Class II director, and Messrs. Shah and Davis will serve as Class III directors.
We have agreed that for a period of three years from the date of this prospectus, at BlueStone's request, we will nominate and use our best efforts to elect two designees of BlueStone as directors of our company or, at BlueStone's option, as non-voting advisors to our board of directors. Our officers, directors and stockholders have agreed to vote their common stock in favor of BlueStone's designees. BlueStone has not yet exercised its designation right.
DIRECTORS COMPENSATION. Except for grants of stock options, directors will not receive any cash compensation for their services as board members although they will be reimbursed for expenses in attending board and committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS. Upon the closing of this offering, the board of directors will establish a compensation committee and an audit committee. The initial members of each of the committees will be independent directors. The compensation committee will be responsible for receiving and making recommendations to the board on all compensation and hiring issues relating to officers and senior staff members and administering the 1999 stock option plan. The audit committee will be responsible for making recommendations to the board regarding the selection of our independent accountants, consulting with our independent accountants and financial and accounting staff and reviewing and reporting to the board on the scope of audit procedures, accounting practices and internal accounting and financial controls.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for the year ended December 31, 1998 for our chief executive officer, who was the only executive officer whose compensation was over $100,000 during the fiscal year ended December 31, 1998.
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Mr. Shah also received other fringe benefits from Litronic in his capacity as chief executive officer and chairman of the board; however, those benefits were less than $50,000 during the year ended December 31, 1998.
We anticipate that during the fiscal year ending December 31, 1999 the only executive officers that will earn $100,000 or more will be Messrs. Shah, Davis
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and Gray.
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No other executive officer whose name appears in the table under "Management-Executive officers, directors and key employees" received stock options or stock appreciation rights in the year ended December 31, 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The value of the options described above is based upon the difference between the exercise price per share and the estimated fair market value per share at December 31, 1998, as determined by the board of directors, multiplied by the number of shares subject to the options.
EMPLOYMENT AGREEMENTS
GENERAL
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Kris Shah and William Davis have each entered into a 2-year employment agreement with Litronic, effective as of the date of the offering. The agreement provides that after the initial term it will automatically renew for successive one year terms unless it is terminated by us or by the employee through written notice given to the other party 90 days before the expiration of the then current term. The agreements provide that Messrs. Shah and Davis will each receive an annual salary of $175,000 for the 12-month period following the date of this prospectus. Thereafter, their salaries may be adjusted by our compensation committee. Each of Messrs. Shah and Davis are also entitled to receive annual bonus awards of $100,000 if we have earnings of $2.5 million or more and an additional $37,500 for each additional $1 million of earnings in excess of $2.5 million.
In making the calculation for the bonuses we will measure earnings before interest and taxes and will add back the amortization of goodwill resulting from the Pulsar acquisition.
TERMINATION OF EMPLOYMENT
Each employment agreement provides that, in addition to being terminated through the notice features described above, employment may be terminated as follows:
. by the employee if the employee has good reason to terminate the agreement. Good reason exists if:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document . the employee is relieved of his position as, or is not reappointed as, an officer of our company;
. the employee's title, office or responsibilities change substantially;
. the employee's base salary is reduced to an amount that is less than $175,000 or by more than 10%;
. we fail to maintain our employee benefit plan;
. we sell or transfer our company and fail to obtain the successor's assumption of the employment agreement; or
. we fail to comply with a material term of the employment agreement and fail to cure our default after appropriate notice.
. by us if we determine that due cause for termination exists. Due cause exists if we find that the employee:
. intentionally misapplied our money or property;
. committed an act of dishonesty that harmed our company;
. was convicted of a felony or a crime involving moral turpitude;
. has used a controlled substance, including alcohol, which affects his ability to perform his job duties; or
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. breached the terms of the employee agreement.
. Additionally, we can terminate the agreement upon the employee's:
. death;
. disability for more than 180 days after we give 30 days notice of our intention to terminate the agreement; or
. retirement.
Finally, we can terminate the employment agreement for any other reason, at any time, but we will be deemed to have constructively terminated the agreement and will be liable to pay the employee the severance payment described below.
PAYMENT UPON TERMINATION
We may be obligated to make payments to the employee upon termination of employment depending on the circumstances surrounding the termination. Following is a description of situations in which we may or may not be obligated to make severance payments:
. If the employment agreement is terminated by the employee after giving notice, by us for cause or by the employee in breach of the agreement, we will not be obligated to pay any compensation after the termination date, except:
. employee benefits;
. unpaid base salary the employee has earned which we have not yet paid; and
. vested stock options.
. If the employment agreement is terminated by the employee for good cause or by us through a constructive termination, we will be obligated to pay the employee:
. his annual salary through the latter of the end of the employment agreement term or a period of two years;
. a pro rata bonus for the fiscal year in which the termination occurs;
. continuing medical and life employee benefits for six months after the termination; and
. vested stock options.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CONFIDENTIALITY AND NONCOMPETE CLAUSES
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Each of the employment agreements also contains noncompete, confidentiality and nondisclosure clauses designed to protect our intellectual property. Additionally, each agreement contains a provision designed to preclude the employee from claiming rights to any products or technologies he developed while in our employ or for a two-year period following his termination.
STOCK OPTION PLANS
1998 STOCK OPTION PLAN
Our 1998 stock option plan was established to provide directors, officers and employees with an opportunity to invest in our company and to advance our interest and our stockholders' interests by enabling our company to attract and retain qualified personnel. Under the plan our board of directors has authority to grant incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986 to our employees and non-qualified stock options to our employees, officers and directors or to some other individuals as the board determined. Generally, the board of directors has discretion to amend, suspend or terminate the plan from time to time. Administration of the plan may be delegated to a committee appointed by the board of directors. The option period and provisions for exercise of each option granted are determined by the committee at the time of each the grant. Unless it is terminated earlier, the plan terminates on April 1, 2008.
Options to purchase an aggregate of 281,419 shares of common stock have been granted under the 1998 stock option plan at an exercise price of $.70 per share. Of these, options to purchase 142,927 shares are vested as of the date of this prospectus. Of these options,
. options to purchase 77,419 shares have been granted to Mr. Gray, all of which have vested;
. options to purchase 11,613 shares have been granted to Mr. Seykora, of which options to purchase 2,323 shares have vested and the remaining 9,073 options will vest at a rate of 2,323 per year.
No additional options will be granted under the 1998 stock option plan.
1999 STOCK OPTION PLAN
Our 1999 stock option plan is intended to provide directors, officers and employees with an opportunity to invest in our company and to advance our interest and our stockholders' interests by enabling our company to attract and retain qualified personnel. Under the plan our board of directors has authority to grant incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986 to our employees and non-qualified stock options to our employees, officers and directors or to
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some other individuals as the board may determine. Generally, the board of directors has discretion to amend, suspend or terminate the plan from time to time. Administration of the plan may be delegated to a committee appointed by the board of directors. The option period and provisions for exercise of each option granted shall be determined by the committee at the time of the grant. A total of 600,000 shares of common stock have been reserved for issuance in the aggregate under the plan. No options have been granted under the plan. Unless it is terminated earlier, the plan will terminate on March 31, 2009. Options or other awards that are granted under the plan but which expire unexercised are available for future grants.
PRINCIPAL STOCKHOLDERS
The following table presents, as of the date of this prospectus, information we know regarding the beneficial ownership of our common stock by (a) each person or entity known to us to own beneficially more than 5% of the common stock, (b) each director, (c) each director nominee, (d) each named executive officer, and (e) all directors and executive officers as a group. In presenting this information, we have:
. given effect to the Pulsar acquisition;
. assumed that there are 6,040,631 shares outstanding as of the date of this prospectus and 9,040,631 shares outstanding immediately after the consummation of this offering.
The address of each person in the table below is the address of our
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document company.
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______
In calculating the information in this table, we relied on the following assumptions:
. all the persons named in the table have sole voting and investment power over all shares they beneficially own, subject to community property laws, where applicable;
. a person or entity is considered the beneficial owner of securities that it can acquire through the exercise of options within 60 days from the date of this prospectus;
. In calculating each beneficial owner's percentage ownership we assumed that only options held by that person that are exercisable within 60 days of the date of this prospectus have been exercised.
The shares beneficially owned by Kris Shah include (a) 435,301 shares held by the Chandra L. Shah Trust, of which Mr. Shah is the trustee, (b) 435,301 shares held by the Leena Shah Trust, of which Mr. Shah is the trustee and (c) 2,349,877 shares held by the Kris and Geraldine Shah Family Trust, of which Mr. Shah and his wife are the trustees and beneficiaries.
The shares beneficially owned by Ramesh R. Shah and Patricia L. Shah are held by the Ramesh R. Shah and Patricia L. Shah Living Trust, of which Ramesh R. Shah and
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Patricia L. Shah are trustees and beneficiaries. Ramesh Shah is the brother of Kris Shah and Patricia Shah is the sister-in-law of Kris Shah.
The shares beneficially owned by Mr. Gray are shares issuable upon exercise of his currently exercisable options.
The shares beneficially owned by all directors and executive officers as a group include 80,904 shares issuable upon exercise of currently exercisable options and exclude 69,846 shares issuable upon exercise of options which become exercisable at various times commencing December 31, 1999. The inclusion of shares in this table as beneficially owned is not an admission of beneficial ownership.
CERTAIN TRANSACTIONS
THE PULSAR ACQUISITION
Litronic entered into a stock acquisition agreement with Pulsar and William W. Davis, Sr., our president and chief operating officer, and Lillian Davis, the former stockholders of Pulsar. The agreement provides that Mr. Davis and Ms. Davis will exchange all of their stock for an aggregate of 2,169,938 shares of our common stock simultaneously with the closing of this offering. The shares of our common stock that Mr. Davis and Ms. Davis will receive are valued at approximately $21.7 million, based on an assumed initial public offering price of $10 per share. As a result of the Pulsar acquisition, Pulsar will become a wholly-owned subsidiary of our company and William Davis and Lillian Davis will become principal stockholders of our company.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document THE POTENTIAL ASSURE TECHNOLOGY ACQUISITION
Creditors of Sistex, Inc., the current owner of the Assure technology, have obtained judgments against Sistex aggregating approximately $6.0 million. As a result, Sistex has turned over to a Commissioner in Chancery the Assure technology for sale or other disposition.
We intend to enter into an agreement with the judgment holders on or before April 16, 1999 by which:
. the judgment holders will agree to postpone the foreclosure sale until after the closing of this offering so that we will have an opportunity to bid on and possibly acquire the technology, and
. in return, we will agree to make a minimum bid at the foreclosure sale of least $6.0 million, payable in unregistered shares of our common stock
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valued at the average closing price of our common stock on Nasdaq on the five days prior to the day of the foreclosure sale.
Our decision to enter into this agreement will be subject to our being satisfied with the results of our due diligence investigation relating to the Assure technology, which investigation must be completed prior to April 16, 1999.
Included among the judgment holders in the foreclosure action are affiliates of BlueStone, who hold judgments aggregating approximately $750,000, including a judgment in the amount of approximately $150,000 held by Anthony Giraudo, a director nominee of our company and a limited partner of BlueStone. If our bid is the winning bid at the foreclosure sale, all of the judgment holders, including the BlueStone affiliates, will receive their proportionate percentage of the shares of our common stock included in the bid.
OTHER TRANSACTIONS WITH RELATED PARTIES
We had obligations aggregating approximately $211,000 to Kris Shah, our chief executive officer and chairman of the board, for accrued compensation at December 31, 1994. On January 2, 1995, this obligation was converted into an unsecured note, bearing interest at an annual rate of 8%, which was due on December 31, 1998. On October 29, 1997, the aggregate principal and interest amounting to approximately $252,000 due on the note was repaid.
In 1996 and 1997, in the ordinary course of business, we have financed equipment for our operations in the aggregate amount of approximately $1.5 million. These obligations were personally guaranteed by Kris Shah, and were satisfied in full during 1997.
In June 1995, Davis Holding, Inc., a privately held corporation owned entirely by the son of William W. Davis, Sr., purchased a building in Atlanta, Georgia. This purchase was financed through loans to Davis Holding, Inc. from Wilmington Trust Company in the amount of $2.4 million. These loans were guaranteed by Pulsar and personally guaranteed by William W. Davis, Sr. and Lillian Davis.
Between July 1995 and June 1996, Pulsar made a series of eight loans aggregating $2.8 million to Davis Holding, Inc. These loans bear interest at annual rates varying from 7.5% to 10.0% and are due on demand. Two of these loans were in the form of assignment of notes receivable to Pulsar from third parties in the aggregate principal amount of $623,000, which were assigned back to Pulsar in December 1997. The notes were written off as bad debt expense in the year ended December 31, 1997.
In October 1995, Davis Holding, Inc. and Mr. Davis' son purchased Palmer III Limited Partnership. At the time of the purchase, the principal asset of Palmer was a building in Lanham, Maryland. This purchase was financed through a loan to Davis Holding, Inc. from Wilmington Trust Company in the amount of $2.8 million which was guaranteed by Pulsar and personally guaranteed by William W. Davis, Sr. and Lillian Davis. Following the acquisition of the building, Davis Holding, Inc. leased a portion of the Lanham, Maryland building to Pulsar at
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fair market rate rents. Payments of rent under the lease were $1,042,000, $955,500 and $409,500 during the years ended December 31, 1996, 1997 and 1998. A portion of the rent expense incurred under the related party lease was used to offset the notes receivable balance of the related party. The amount of rent expense used to offset the notes receivables from Davis Holding, Inc. for the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document years ended December 31, 1997 and 1998 was $182,000 and $344,000. In addition, principal and interest under the notes were reduced by $750,000 as payment of a fee for terminating the lease as of September 30, 1998. As of January 1, 1999, the approximately $1.3 million outstanding under these loans was converted into a $543,000 promissory note and a $804,000 promissory note, each bearing interest at an annual rate of interest of 7.5%, payable monthly, and maturing upon the sales of the Lanham, Maryland and Atlanta, Georgia properties. Previously, it was anticipated that these sales would occur in 1999; however, the transactions have been delayed for an unspecified period of time. Consequently, Pulsar can no longer determine the recoverability of these notes and therefore reclassified the notes as a reduction of stockholders' equity and fully reserved for them as of December 31, 1998. The notes are being retained by Pulsar.
In May 1996, Pulsar entered into a line of credit with Wilmington Trust Company which was personally guaranteed by William W. Davis, Sr., and Lillian Davis. Under the line of credit, Pulsar could borrow up to the lesser of its accounts receivable or $22 million secured by a pledge of eligible accounts receivable, inventory, machinery and equipment. Interest on the outstanding line of credit accrues at a variable rate of interest. In October 1997, the line of credit was converted to a term loan of $5.20 million which is guaranteed by William W. Davis, Sr., Lillian Davis, Palmer III Limited Partnership and Davis Holding, Inc., and is secured by an indemnity mortgage and security deed from Palmer III Limited Partnership on its Lanham, Maryland property and a security deed from Davis Holding, Inc. on its Atlanta, Georgia property.
We had an unsecured revolving line of credit up to $1 million from Kris Shah which accrued interest at an annual rate of 8%. All unpaid principal and interest under this line was repaid during 1996. During the year ended December 31, 1996, $30,000 of the interest under this line was paid to Mr. Shah. The line of credit expired on January 31, 1997 and was not renewed.
In June 1996, we entered into a one-year loan and security agreement with Fidelity Funding, Inc., which was personally guaranteed by Kris Shah. Under the agreement, Fidelity extended a variable rate credit line of up to $5.95 million, of which $1.0 million was collateralized by fixed assets, $2.2 million was collateralized by real estate, $2.5 million was collateralized by accounts receivable and inventory and $250,000 in the form of a standby line of credit. In September 1997, we sold the building securing the $2.2 million real estate line and repaid the line. In March 1998, the $2.5 million revolving credit facility was extended to February 2000. As of December 31, 1998, $580,000 was outstanding under this facility. We intend to repay the outstanding indebtedness under this credit facility out of the proceeds from this offering, at which time Mr. Shah's guarantee will be released.
In December 1996, we entered into a line of credit at a fixed annual rate of interest of 6.6% with the Bank of Yorba Linda for up to $1.04 million, which was personally guaranteed by
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Kris Shah and his wife Geraldine Shah and secured by a pledge of their personal assets. This line was repaid in June 1997.
In January 1997, we formed KRDS, Inc. as a wholly owned subsidiary in connection with the acquisition of real estate. In connection with the formation of KRDS, Inc. we made a capital contribution in the amount of $8.5 million to KRDS, Inc. Following the acquisition, KRDS leased to us at market a portion of the property acquired to use in our former Intercon division. In December 1997, we made a cash distribution of $9.5 million to our stockholders. Subsequently, we distributed the capital stock and net assets of KRDS (discussed below) to our stockholders. As a result of the KRDS distribution, we removed the property and the corresponding mortgage and related liabilities from our consolidated balance sheet. Following the distribution, we borrowed $2.9 million from KRDS which was evidenced by an unsecured promissory note. In February 1998, we borrowed an additional $600,000 from KRDS which borrowing was evidenced by an unsecured promissory note. Each of these notes bore interest at an annual rate of 10% and were paid in full in September 1998 with the proceeds of our loan from BYL Bank Group.
In October 1997, Pulsar entered into an inventory and working capital financing agreement with IGFC which provides that Pulsar can finance purchases of products through IGFC. As amended on February 2, 1999, the agreement provides for a credit line up to the lesser of $8 million, a specified percentage of Pulsar's eligible accounts receivable or a specified percentage of Pulsar's on- hand inventory. The credit line is secured by substantially all Pulsar's assets and personal assets of William W. Davis, Sr. and is personally guaranteed by Mr. Davis and Lillian Davis. We intend to repay a portion of the indebtedness outstanding under this financing agreement using proceeds from this offering, at which time Mr. Davis' guarantee and the assets pledged by Mr. Davis will be released.
During the year ended December 31, 1997 we made pro rata distributions to our stockholders of (a) $9.5 million in cash, (b) the rights to the contingent payment relating to the sale of our Intercon division, (c) the rights to a
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document gross-up payment for expected tax liability resulting from the gain on the sale of our Intercon division and (d) the capital stock and net assets of KRDS ($8.5 million of cash).
In September 1998, we executed two promissory notes aggregating $5.2 million in favor of BYL Bank Group at a fixed annual rate of interest of 6.6%. Both notes were personally guaranteed by Kris Shah and secured by a pledge of personal assets of Mr. Shah. We intend to use a portion of the proceeds of this offering to repay the indebtedness under this loan, at which time Mr. Shah's guarantee and the assets pledged by Mr. Shah will be released.
Mr. Davis loaned to Pulsar $120,000 on November 23, 1998 and $222,000 on January 5, 1999. These loans bear interest at the annual rate of 6% beginning April 1, 1999.
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DESCRIPTION OF SECURITIES
Upon the closing of the offering, our authorized capital stock will consist of 25,000,000 shares of common stock, $0.01 par value per share and 5,000,000 shares of preferred stock, $0.01 par value per share. As of the date of this prospectus, there are 3,870,693 shares of our common stock held of record by five stockholders, and, after giving effect to the Pulsar acquisition, there will be 6,040,631 shares of our common stock outstanding held of record by seven stockholders.
We have summarized below selected provisions of Delaware law applicable to our company, and the principal provisions of our common stock, our certificate of incorporation and our bylaws. However, our descriptions are only a summary and you should refer to the actual provisions of Delaware law, our certificate of incorporation and our bylaws which we included as exhibits to the registration statement, for a more complete explanation of their provisions.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock may elect all of the directors standing for election. Holders of common stock are entitled to receive any dividends that are declared by the board of directors. Upon our liquidation, dissolution or winding up, and after payment of all debts and other liabilities holders of our common stock are entitled to receive our remaining net assets. Holders of common stock have no preemptive, subscription or redemption rights. The outstanding shares of common stock are, and the shares we are offering in this offering will be when issued and paid for, fully paid and non-assessable.
PREFERRED STOCK
Our certificate of incorporation authorizes our board of directors to issue up to 5,000,000 shares of preferred stock with a par value of $0.01 per share. The board may issue the stock in one or more series and may fix the rights, voting process and preferences of the stock. As of the date of this prospectus, no shares of preferred stock have been issued.
REGISTRATION RIGHTS
We have entered into a registration rights agreement with our stockholders which grants our stockholders the right to include their shares in any registration of our common stock in an underwritten offering that occurs after this offering. All of the stockholders have agreed not to exercise this right for two years following the closing of this offering, without the prior written consent of BlueStone. We have also
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granted the representatives of the underwriters registration rights with respect to their warrants to purchase up to 300,000 shares of our common stock.
DELAWARE LAW AND CHARTER AND BYLAW PROVISIONS LIMITING LIABILITY OF OFFICERS AND DIRECTORS
Section 203 of the General Corporation Law of Delaware generally prohibits us from engaging in a merger, asset sale and other transaction with an interested stockholder that results in a financial benefit to the interested stockholder for a three year period from the date the person became an interested stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of our voting stock.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Under Delaware General Corporation Law the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend our certificate of incorporation or bylaws.
Our certificate of incorporation contains provisions limiting the liability of our directors. Specifically, the provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in cases involving wrongful acts, such as the breach of a director's duty of loyalty, or acts or omissions which involve intentional misconduct or a knowing violation of law. Further, our certificate of incorporation contains provisions to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. We believe these provisions will assist us in attracting and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental Stock Transfer & Trust Company, Two Broadway, New York, New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
An aggregate of 3,870,693 of the 6,040,631 shares currently restricted from trading in the public market will become eligible for sale 90 days following the date of this prospectus, subject to agreements with BlueStone restricting their sale for periods of at least six months. We cannot predict the effect, if any, that sales of these additional securities or the availability of these additional securities for sale will have on the market prices prevailing from time to time. In addition, the representatives have been granted registration rights commencing one year from the date of this prospectus providing for the registration under the Securities Act of the securities issuable upon exercise of the representatives' warrants. The exercise of these rights could result in substantial expense to us. Furthermore, if the representatives exercise their registration rights, they will be
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unable to make a market in our securities for up to nine days before the initial sales of the warrants until the discontinuation of sales. If the representatives cease making a market, the market and market prices for the securities may be adversely affected and the holders of these securities may be unable to sell them.
Upon completion of this offering, we will have outstanding an aggregate of 9,040,631 shares of our common stock, assuming no exercise of the representatives' over-allotment option and no exercise of outstanding options. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by our affiliates. The remaining 6,040,631 shares of common stock held by existing stockholders are restricted securities under Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act.
CONTRACTUAL RESTRICTIONS ON RESALES
All of our officers, directors and security holders have agreed not to transfer or dispose of, directly or indirectly, any of their shares of our common stock, or any securities convertible into or, exchangeable or exercisable for shares of our common stock, for a period of 24 months from the date of this prospectus. Transfers or dispositions may be made sooner than 24 months as follows:
. BlueStone may waive the restrictions on transfer or sale at any time more than six months after the date of this prospectus; or
. beginning twelve months after the date of this prospectus, owners subject to the restrictions may transfer or dispose of their common stock, without BlueStone's permission, if aggregate sales by them in any 90-day period are not more than the greater of :
. one percent of our common stock outstanding at the time of the sale; or
. the average weekly trading volume of our common stock during the four calendar weeks preceding the holder's sale.
. beginning 12 months after the date of this prospectus, existing optionholders who have exercised their options may transfer or dispose of in the aggregate up to 100,000 shares of their common stock registered under a Form S-8 registration
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document statement.
Subject to these contractual restrictions and to the provisions of Rule 144, 3,870,693 shares of common stock will be available for sale in the public market commencing six months after the date of this prospectus, and an additional 2,169,938 shares of common stock will be available for sale in the public market commencing twelve months after the date of this prospectus.
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RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell, within any three- month period, a number of those shares that does not exceed the greater of:
. one percent of the number of common shares then outstanding, which will equal approximately 90,400 shares immediately after this offering; or
. the average weekly trading volume in the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 for the sale.
Sales under Rule 144 are also subject to restrictions on the manner of sale and require notice to the Securities and Exchange Commission of the sale. Sales under Rule 144 are also restricted based on the availability of public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, 144(k) shares may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors who purchases securities, including options, from us before the date of this prospectus through our stock option plans or through some other written agreement is eligible to resell those shares, including shares issued upon the exercise of options, 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with the holding period, information and volume restrictions contained in Rule 144.
UNDERWRITING
BlueStone Capital Partners, L.P. and Pacific Crest Securities Inc. are acting as representatives of the several underwriters named below. The underwriters have agreed, severally and not jointly, subject to the terms and conditions contained in the underwriting agreement relating to this offering, to purchase the 3,000,000 shares of common stock offered by
-106- our company. The number of shares of common stock that each underwriter has agreed to purchase is set forth opposite its name below:
Underwriter Number of Shares ------BlueStone Capital Partners, L.P. Pacific Crest Securities Inc.
------Total 3,000,000 ======
The underwriters are committed to purchase and pay for all of the shares of common stock offered by this prospectus (other than shares offered through the over-allotment option) if any shares are purchased. The obligations of the underwriters under the underwriting agreement are subject to approval of legal matters by counsel and to various other conditions.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The representatives have advised us that the underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus. The underwriters may allow to dealers who are members of the National Association of Securities Dealers, Inc. concessions, not in excess of $ . per share, of which not in excess of $ . per share may be reallowed to other dealers who are members of the NASD.
We have granted to the representatives an option, exercisable not later than 45 days after the date of this prospectus, to purchase up to 450,000 additional shares of our common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The representatives may exercise this option only to cover over-allotments, if any, made in connection with the sale of the shares of common stock offered by this prospectus. If the representatives exercise the over-allotment in full, the total price to public would be $ , the total underwriting discounts and commissions would be $ and the total proceeds, before payment of the expenses of this offering, to our company would be $ . We estimate the expenses of this offering, including those payable to or on behalf of the representatives and/or the underwriters described below, to be $2.2 million, or $2.3 million if the representatives' over-allotment option is completely exercised.
We have agreed to reimburse the representatives for their accountable out- of-pocket expenses incurred in connection with this offering, up to a maximum amount equal to 1-1/2% of the gross proceeds derived from the sale of the shares offered by this prospectus, including shares sold, if any, as a result of the exercise of all or part of the representatives' over-allotment option. We have also agreed to pay all expenses in connection with qualifying the shares offered under the laws of the states designated by the
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representatives, including expenses of counsel retained for this purpose by the representatives.
At the closing of this offering, we will sell to the representatives and their designees, for an aggregate of $300, warrants to purchase up to 300,000 shares of our common stock. The representatives' warrants will be exercisable at any time, in whole or in part, during the four-year period commencing one year from the date of this prospectus, at an exercise price of $ per share, which is 165% of the public offering price per share. The representatives' warrants are assignable or transferable only to the officers and partners of the representatives or the underwriters or members of the selling group during the one-year period following the date of this prospectus. During the exercise period, the holders of the representatives' warrants will have the opportunity to profit from a rise in the market price of the common stock, which will dilute the interests of our stockholders. We expect that the representatives' warrants will be exercised when we would, in all likelihood, be able to obtain any capital we need on terms more favorable than those provided by the representatives' warrants. Any profit realized by the representatives on the sale of their warrants or the underlying shares of common stock may be deemed additional underwriting compensation. The representatives's warrants contain a cashless exercise provision. We have agreed that, upon the request of the holders of a majority of the representatives's warrants, we will at our own expense, on one occasion during the exercise period, register the representatives' warrants and the shares of common stock underlying the representatives' warrants under the Securities Act. We have also agreed to include the representatives' warrants and all shares of common stock underlying the warrants in any appropriate registration statement which we file under the Securities Act during the seven years following the date of this prospectus.
In connection with the acquisition of Pulsar, BlueStone has served as our financial advisor and will receive a fee of $500,000 for these services upon closing of this offering.
All of our officers, directors and securityholders have agreed not to sell, offer for sale, transfer, pledge or otherwise dispose of any of their shares of our common stock, or securities convertible, exchangeable or exercisable for shares of our common stock, for a period of 24 months from the date of this prospectus, provided that, after the first six months of this period, this restriction can be waived by BlueStone, in its sole discretion, and provided further that, after the first 12 months of this period, sales may be made, without BlueStone's consent, as long as the number of shares (or share equivalents) sold by any of these holders does not exceed, during any 90-day period, the greater of (a) 1% of the then outstanding shares of our common stock and (b) the average weekly trading volume of our common stock during the four calendar weeks preceding the holder's sale.
The representatives have informed us that they do not expect sales of the securities offered to discretionary accounts to exceed 3% of the shares offered by this prospectus.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We have agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act.
Before this offering there has been no public market for our common stock. Accordingly, the initial public offering price of the common stock will be determined by negotiation between us and the representatives and may not necessarily be related to our asset value, net worth or other established criteria of value. Factors to be considered in determining the price include our financial condition and prospects, an assessment of our management, market prices of similar securities of comparable publicly-traded companies, financial and operating information of companies engaged in activities similar to those of our company and the general condition of the securities market.
In connection with this offering, the underwriters may engage in passive market making transactions in the shares on Nasdaq in accordance with Rule 103 of Regulation M promulgated under the Exchange Act.
In connection with this offering, the underwriters may purchase and sell the common stock in the open market. These transactions may include over- allotment and stabilizing transactions. Stabilizing transactions consist of bids or purchases for the purpose of preventing or retarding a decline in the market price of the common stock. The underwriters may also place bids or purchase shares to reduce a short position created in connection with the offering. Short positions are created by persons who sell shares which they do not own in anticipation of purchasing shares at a lower price in the market to deliver in connection with the earlier sale. Short positions tend to place downward pressure on the market price of a stock. In addition, the representatives and/or the underwriters may impose a penalty bid by reclaiming the selling concession to be paid to an underwriter or selected dealer when the securities sold by the underwriter or selected dealer are purchased to reduce a short position created in connection with this offering. These activities may stabilize, maintain or otherwise affect the market price of the common stock, which may be higher than the price that might otherwise prevail in the open market, and these activities, if commenced, may be discontinued at any time. These transactions may be effected on Nasdaq, the over-the-counter market or otherwise.
Anthony Giraudo, a director nominee of our company, is a limited partner of BlueStone.
LEGAL MATTERS
The validity of the shares of our common stock offered by this prospectus will be passed upon for us by Arent Fox Kintner Plotkin & Kahn, PLLC, Washington, D.C. Certain legal matters in connection with this offering will be passed upon for the underwriters by Tenzer Greenblatt LLP, New York, New York.
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EXPERTS
The consolidated financial statements of Litronic Inc. as of December 31, 1997 and 1998, and for each of the years in the three-year period ended December 31, 1998, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Pulsar Data Systems, Inc. as of and for the year ended December 31, 1998 have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG LLP covering the December 31, 1998 financial statements contains an explanatory paragraph that states Pulsar Data Systems, Inc.'s losses from operations and working capital deficiency raise substantial doubt about the entity's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty.
The financial statements and schedules of Pulsar Data Systems, Inc. as of December 31, 1997, and for each of the years in the two-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of Keller Bruner & Company, L.L.C., independent certified public accountants, appearing elsewhere herein, and upon the authority of Keller Bruner & Company, L.L.C. as experts in accounting and auditing. The report of Keller Bruner & Company, L.L.C. covering the December 31, 1997, financial statements contains an explanatory paragraph that states that Pulsar's recurring losses from operations and net capital deficiency raise substantial doubt about the entity's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ADDITIONAL INFORMATION
We intend to furnish to our stockholders annual reports containing audited consolidated financial statements examined by an independent accounting firm and quarterly reports for the first three quarters of each fiscal year containing interim unaudited consolidated financial information.
We have filed with the Securities and Exchange Commission a registration statement (including this prospectus and exhibits) on Form S-1 under the Securities Act for the common stock offered by this prospectus. This prospectus does not contain all of the information contained in the registration statement. References in this prospectus to any contract, agreement or other document are not necessarily complete. For a more complete description of any of these contracts, agreements or other documents, you should refer to the registration statement and the exhibits attached to the registration statement, which may be obtained for a fee from the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices located
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at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Also, we have filed electronic versions of this registration statement (including its exhibits and this prospectus) with the Securities and Exchange Commission through its Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The Securities and Exchange Commission maintains a worldwide web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. -111-
LITRONIC INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998, and December 31, 1998 Pro Forma (unaudited) F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998 F-4
Consolidated Statements of Shareholders' Deficiency for the years ended December 31, 1996, 1997 and 1998 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 F-7
Notes to Consolidated Financial Statements F-10
F-1
INDEPENDENT AUDITORS' REPORT
(WHEN THE REORGANIZATION AS DESCRIBED IN NOTE 1 OF THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER THE FOLLOWING OPINION.)
/s/ KPMG LLP
The Board of Directors Litronic Inc.:
We have audited the accompanying consolidated financial statements of Litronic Inc. and subsidiary as of December 31, 1997 and 1998 and for each of the years in the three-year period ended December 31, 1998 as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Litronic Inc. and subsidiary as of December 31, 1997 and 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles.
Orange County, California February 26, 1999
F-2
LITRONIC INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
See accompanying notes to consolidated financial statements.
F-3
LITRONIC INC. AND SUBSIDIARY Consolidated Statements of Operations (in thousands except share and per share data)
(continued)
F-4
LITRONIC INC. AND SUBSIDIARY Consolidated Statements of Operations (continued) (in thousands except share and per share data)
See accompanying notes to consolidated financial statements.
F-5
LITRONIC INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Deficiency
(in thousands)
See accompanying notes to consolidated financial statements.
F-6
LITRONIC INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (in thousands)
F-7
F-8
LITRONIC INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(in thousands)
(Continued)
F-9
LITRONIC INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
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See accompanying notes to consolidated financial statements.
F-10
LITRONIC INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1998
(in thousands, except per share data)
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Litronic Inc. (through a reorganization with Litronic Industries, Inc., as described further below) (the Company) designs and produces high grade information security solutions. In addition, the Company also provides engineering and other services to various government agencies on a time and material basis. Through its Intercon division (Intercon), which was discontinued during 1997 (see note 2), Litronic Industries, Inc. provided state-of-the-art electronic interconnect products for both government and commercial entities.
PROPOSED PUBLIC OFFERING AND REORGANIZATION
During 1998, Litronic Industries, Inc. engaged attorneys and investment bankers to assist in the effectuation of an initial public offering of common stock of Litronic Inc., a newly formed corporation with no operations (the "Offering"). Litronic Industries, Inc. has also initiated certain events (the "Reorganization") in connection with the Offering which will result in it becoming a wholly-owned subsidiary of Litronic Inc. as of the effective date of the Offering. The Reorganization will be accomplished through a stock-for-stock exchange between Litronic Inc. and Litronic Industries, Inc. and will be accounted for as an "as if pooling of interests" for entities under common control. The Company has also entered into a plan of merger with Pulsar Data Systems, Inc. to be effected simultaneously with the Offering. This merger is contingent upon the successful completion of the Offering.
All of the outstanding shares of Litronic Industries, Inc. will be exchanged for 3,870,693 shares of the Company's common stock. Consequently, upon the effective date of the Offering and the related Reorganization, the consolidated group will include the operations of Litronic Inc. and its wholly-owned subsidiary, Litronic Industries, Inc.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements and related notes presented herein have been retroactively adjusted to reflect the Reorganization. The capital structure presented in these financial statements is that of Litronic Inc., but all other information presented relates to the historical and pro forma operations of Litronic Industries, Inc., as Litronic Inc. had no operations during the periods presented and will have no operations until the consummation of the Reorganization. All references herein to "the Company" refer to Litronic Inc. as consolidated with Litronic Industries, Inc.
PRO FORMA PRESENTATION
F-11
LITRONIC INC.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
Concurrently with the Reorganization, Litronic Industries, Inc. will terminate its Subchapter S corporation status and will become subject to federal and state income taxes. The accompanying pro forma consolidated balance sheet reflects this change from an S corporation to a C corporation. The accompanying pro forma consolidated financial statements of operations include a pro forma presentation to reflect a provision for income taxes in accordance with Statement of Financial Accounting Standards No. (Statement) 109, "Accounting for Income Taxes." Statement 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. The Company has not recorded any deferred tax assets in the accompanying unaudited consolidated pro forma balance sheet as management believes it is not more likely than not that the Company will realize the benefit of such deferred tax assets.
Unaudited pro forma earnings (loss) for the years ended December 31, 1996, 1997 and 1998 reflect a provision for (benefit from) income taxes as if the Company had been subject to federal and state income taxes at an estimated effective tax rate of approximately 34%.
PRO FORMA EARNINGS (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement 128, "Earnings Per Share." Statement 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing earnings (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. Such shares are not included when there is a loss as the effect would be anti-dilutive.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Litronic Inc., its wholly-owned subsidiary Litronic Industries, Inc. and, in 1997, Litronic Industries, Inc.'s wholly owned subsidiary, KRDS, Inc., which was formed as a corporation on January 30, 1997. All significant intercompany balances and transactions have been eliminated in consolidation. On December 31, 1997, the Company distributed KRDS, Inc. to the Company's primary shareholders (note 7).
REVENUE RECOGNITION
Revenue from product sales, including embedded software, is recognized upon shipment unless contract terms call for a later date, net of an allowance to cover estimated warranty costs. Customers do not have the right of return except for product defects, and product sales are not contingent upon customer testing, approval and/or acceptance. The costs of providing
F-12
LITRONIC INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued) postcontract customer support are not significant. Revenue under service and development contracts is recorded as services are rendered. The Company's revenue recognition policies are in compliance with the American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition. Reimbursements under consortium agreements were recorded as revenue as they became payable to the Company upon completion of related milestones.
Included in license and service revenue in 1998 is $398 related to a contract with a branch of the Federal government, whereby the Company is being partially reimbursed for certain research and development efforts. The related research and development costs are not separately identifiable, therefore the corresponding costs of the entire development effort are included in research and development expenses.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (net realizable value).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is computed on a straight-line basis over the estimated useful lives of 2 to 7 years.
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
BUSINESS SEGMENTS
As of January 1, 1998, the Company adopted Statement 131, "Disclosure about Segments of an Enterprise and Related Information," which requires entities to report financial and descriptive information about its reportable operating segments. The Company historically operated in two business segments, information security solutions and electronic interconnect products. On September 30, 1997, the Company sold its Intercon division, which produced electronic interconnect products. Accordingly, the Intercon division operations have been accounted for as discontinued operations (note 2). The Company's remaining operations pertain only to its information security solutions segment.
ACCOUNTING FOR STOCK OPTIONS
F-13
LITRONIC INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
The Company applies the provisions of Statement 123, "Accounting for Stock- Based Compensation," which requires entities to recognize as expense over the vesting period the fair value as of the date of grant of all stock based awards. Alternatively, Statement 123 allows entities to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, and to provide pro forma net income and pro forma net income per share disclosures for employee stock option grants made in 1996 and future years as if the fair- value-based method defined in Statement 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25, under which compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price, and provide the pro forma disclosure provisions of Statement 123 in its annual financial statements (see note 10).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company applies the provisions of Statement 107, "Disclosures about Fair Value of Financial Instruments." Statement 107 requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. Statement 107 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 1997 and 1998, management believes the fair value of all financial instruments approximated carrying value.
INCOME TAXES
The Company has elected to be taxed as an S Corporation under the provisions of Section 1362 of the Internal Revenue Code and uses the accrual basis of reporting for income tax purposes. Accordingly, the Company has not provided for Federal income taxes since the liability is that of the shareholders. The Company is subject to state income taxes on earnings before taxes. The provision (benefit) for state income taxes was $29 for continuing operations and $(13) for discontinued operations for the year ended December 31, 1996. The provision (benefit) for state income taxes was $22 for continuing operations, $(23) for discontinued operations, and $241 for the gain on disposal of discontinued operations for the year ended December 31, 1997. The benefit for state income taxes was $95 for continuing operations for the year ended December 31, 1998.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, "Reporting Comprehensive Income." Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of Statement 130 had no impact on the Company's consolidated financial statements as the Company had no transactions that would be considered other comprehensive income.
ESTIMATES
F-14
LITRONIC INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In December 1998, the AICPA issued Statement of Position (SOP) 98-9. SOP 98-9 amends certain paragraphs of SOP 97-2 to require recognition of revenue using the "residual method" under certain circumstances. The "residual method" established by SOP 98-9 is effective for fiscal years beginning after March 15, 1999. The Company believes the adoption of SOP 98-9 will not have a significant impact on its financial position or results of operations.
(2) DISCONTINUED OPERATIONS
The Company sold its Intercon division on September 30, 1997 for cash to AlliedSignal Inc., a non-related publicly-traded company. The gain on sale was $15,023, net of tax expense of $241. The results of the Intercon division have been classified as discontinued operations in the accompanying consolidated financial statements. For the year ended December 31, 1996, Intercon revenues were $8,175. Intercon's 1997 revenues through the sale date were $7,653.
In addition to the cash proceeds received upon the close of the transaction, the agreement provided for the right to receive a contingent purchase price as well as a "gross-up" payment based upon the approximate expected tax benefit related to the assets transferred. Effective November 30, 1997, this right was distributed pro rata to the Company's shareholders.
On December 31, 1997, the Company spun-off its subsidiary, KRDS, Inc., to the Company's shareholders. The results of KRDS, Inc. have been classified as discontinued operations in the accompanying consolidated financial statements. For the year ended December 31, 1997, KRDS, Inc.'s revenues were $380.
F-15
LITRONIC INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
(3) INVENTORIES
A summary of inventories follows:
DECEMBER 31, ------1997 1998 ------
Raw materials $ 230 239 Work-in-process 45 25 Finished goods 130 269 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document $ 405 533 ======
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
DECEMBER 31, ------1997 1998 ------
Machinery and equipment $ 68 68 Furniture and fixtures 458 576 ------526 644 Less accumulated depreciation and amortization 206 409 ------
$ 320 235 ======
(5) LONG-TERM DEBT
A summary of long-term debt follows:
DECEMBER 31, ------1997 1998 ------
Notes payable to bank secured by substantially all assets of the Company and personal assets of, and a guarantee by, the Company's president and majority shareholder, bearing interest at 6.6% payable monthly, maturing February 28, 2000 -- 5,200
F-16
LITRONIC INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
Revolving note payable to bank (the Revolver) bearing interest at prime plus 1.5% (9.75% at December 31, 1998) payable in monthly interest- only payments through maturity on February 28, 2000; secured by substantially all assets of the Company and by personal assets of, and a guarantee by, the Company's president and majority shareholder; renewable at the bank's option for additional one-year periods 606 580 ------606 5,780 Less current installments -- 580 ------606 5,200 ======
Principal maturities of long-term debt as of December 31, 1998 are as follows:
Year ending December 31: 1999 580 2000 5,200 2001 and thereafter ------
$5,780 ======
The Revolver contains certain covenants and restrictions, including maintenance of certain financial ratios and a restriction on future borrowings. As of December 31, 1998, the Company was not in compliance with certain of these covenants, and has received a waiver of these covenants until April 1, 1999. In addition, the Revolver was amended through the earlier of the closing of the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Offering or May 31, 1999.
As of December 31, 1998, the Company had available borrowings of $1,920 under the Revolver.
F-17
LITRONIC INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
(6) ACCRUED LIABILITIES
A summary of accrued liabilities follows:
(7) RELATED PARTY TRANSACTIONS
At December 31, 1994, the Company had an obligation of $248 to two of the Company's executive officers for accrued compensation. On January 2, 1995, such obligation was converted to two unsecured notes payable bearing interest at 8%, which were due and payable on December 31, 1998. On October 29, 1997, the principal and interest amounting to $305 due on the notes was repaid. The Company incurred interest expense on these notes aggregating $20 and $18 in 1996 and 1997, respectively.
The Company had an unsecured revolving line of credit with the Company's president and majority shareholder, which permitted borrowings of up to $1,000. All unpaid principal and accrued interest at 8% per annum were due and payable on January 31, 1997. The Company incurred interest expense under this line of credit aggregating $30 in 1996. All outstanding borrowings and accrued interest under this line of credit were repaid during 1996. The line was not renewed when it expired on January 31, 1997.
The primary shareholders of Litronic Industries, Inc. formed KRDS, Inc., for the sole purpose of purchasing real estate property. The majority of the property acquired was leased to the Intercon division and the acquirer of the Intercon division has subsequently executed a continuing lease arrangement with KRDS, Inc. KRDS's only operations consisted of a mortgage obligation, interest, depreciation and rental income from the Company related to the real estate property. The operations of KRDS, Inc. were consolidated with the operations of Litronic Industries, Inc. through December 31, 1997, when concurrent with the sale of the Intercon division, the Company distributed KRDS, Inc. to the Company's shareholders. As the operations of KRDS, Inc. were related to the Intercon operations, the 1997 net income for
F-18
LITRONIC INC. AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
KRDS, Inc. of $2 (after intercompany eliminations) is included in the loss from discontinued operations in the accompanying consolidated statement of operations.
As a result of the sale of the Intercon division on September 30, 1997, the Company distributed $9,534 in cash dividends and distributed the common stock of KRDS, Inc., to the shareholders of Litronic on a pro rata basis in 1997. The net assets of KRDS, Inc. consisted of $8,500 in cash at the time of the distribution.
On December 31, 1997, the Company entered into two unsecured notes payable
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document with KRDS, Inc., it is which the Company was extended $900 and $2,000 in working capital funds and a total of $2,900 was outstanding under these related party notes at December 31, 1997. In February 1998, the Company entered into a third unsecured note payable with KRDS, Inc., under which the Company was extended $600 in working capital funds. Interest was at 10% for each of the unsecured notes payable and each of these unsecured notes and accrued interest were paid in full during 1998. The Company incurred $252 of interest expense on these notes in 1998.
(8) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentration of credit risk are trade receivables. Credit risk on trade receivables is limited as a result of the Company's customer base and their dispersion across different industries and geographic regions. As of December 31, 1997 and 1998, accounts receivable included $447 and $308, respectively, due from the U.S. Government and related agencies.
The Company had sales to three customers which represented 39%, 29% and 18% of 1996 total revenue, respectively. The Company had sales to three customers which represented 45%, 20% and 19% of 1997 total revenue, respectively. The Company had sales to three customers which represented 44%, 17% and 20% of 1998 total revenues, respectively. No other customers accounted for more than 10% of net revenues in 1996, 1997 or 1998. Trade accounts receivable aggregated $709 and $493 from the aforementioned major customers as of December 31, 1997 and 1998, respectively.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancelable operating leases. The terms of the leases range up to four years. The following summarizes the future minimum lease payments under all noncancelable operating lease obligations:
Year ending December 31, 1999 $ 290 2000 243 2001 162 ------
F-19
LITRONIC INC. AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
$ 695 ======
Rental expense under noncancelable operating leases was $206, $215 and $310 for the years ended December 31, 1996, 1997 and 1998.
As the Company provides engineering and other services to various government agencies, it is subject to retrospective audits which may result in adjustments to amounts recognized as revenues, and the Company may be subject to investigation by governmental entities. Failure to comply with the terms of any governmental contracts could result in civil and criminal fines and penalties, as well as suspension from future government contracts. The Company is not aware of any adjustments, fines or penalties which could have a material adverse effect on its financial position or results of operations.
(10) STOCK OPTION PLANS
Under the Company's Employee Stock Option Plan (the Plan), which was established in April 1998, the exercise price of options granted will not be less than the fair market value of the related common stock at the date of grant. The total number of shares of common stock available for grant under the Plan is 600. All stock options granted have 10 year terms. Unless otherwise provided by the Board of Directors or a committee of the Board administering the Plan, each option granted under the Plan vested on December 31, 1998 as to 10-15%, plus an additional 2.5% for each year of service with the Company, and 20% each December 31 thereafter until fully vested.
Following is a summary of stock option transactions:
F-20
LITRONIC INC. AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
As of December 31, 1998, the number of options exercisable was 143.
The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement 123, the Company's net loss would have been increased to the pro forma amount indicated below.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 5%; dividend yield of 0.0%; average expected lives of 6 years; and volatility of 0%. The weighted-average fair value per option granted in 1998 was $0.70. The Black-Scholes model, as well as other currently accepted option valuation models, was developed to estimate the fair value of freely-tradable, fully-transferable options without vesting restrictions, which significantly differ from the Company's stock option plans. These models also require highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated fair value on the grant date.
(11) EMPLOYEE RETIREMENT SAVINGS PLAN
Effective January 1, 1998, the Company established a retirement plan, which is intended to qualify under Section 401(k) of the Internal Revenue Code. Under the plan, eligible employees are able to contribute up to 20% of their compensation not to exceed the maximum IRS deferral amount. The Company may also match employee contributions at its discretion. During 1998, the Company made contributions of $40 to this plan.
F-21
LITRONIC INC. AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
PULSAR DATA SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
F-23
INDEPENDENT AUDITORS' REPORT
The Board of Directors Pulsar Data Systems, Inc.
We have audited the accompanying balance sheet of Pulsar Data Systems, Inc. as of December 31, 1998 and the related statements of operations, stockholders' equity (deficit) and cash flows for the year then ended. In connection with our audit of the financial statements, we also have audited the financial statement schedule for the year ended December 31,1998 as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pulsar Data Systems, Inc. as of December 31, 1998, and the results of its operations and its cash flow for the year ended December 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements take as a whole, presents fairly, in all materials respects, the information set forth therein.
The accompanying financial statements and financial statement schedule have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the financial statements, the Company has suffered a net loss of $7,396,000 in 1998 and has a net capital deficiency of $10,494,000 that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 14. The financial statements and financial statement schedules do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
McLean, Virginia March 31, 1999
F-24
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Pulsar Data Systems, Inc. Lanham, Maryland
We have audited the accompanying balance sheet of Pulsar Data Systems, Inc. as of December 31, 1997, and the related statements of operations, stockholders' deficit, and cash flows for each of the years in the two year period ended December 31, 1997 and the financial statement schedule for each of years in the two year period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pulsar Data Systems, Inc. as of December 31, 1997, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 1997 in conformity with generally accepted accounting principles. Also in our opinion the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 14 to the financial statements, the Company incurred a net loss of approximately $11,016,000 during the year ended December 31, 1997 and has a net capital deficiency of approximately $1,810,000 at December 31, 1997. In addition, as of December 31, 1997, the Company is in violation of its financing agreement debt covenants. These factors, among others, as discussed in Note 14 to the financial statements, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Keller Brunner & Company, L.L.C.
Bethesda, Maryland April 27, 1998
F-25
PULSAR DATA SYSTEMS, INC.
Balance Sheets (in thousands)
See accompanying notes to financial statements
F-26
PULSAR DATA SYSTEMS, INC.
Statements of Operations (in thousands)
See accompanying notes to financial statements
F-27
PULSAR DATA SYSTEMS, INC.
Statements of Stockholders' Equity (Deficit) (in thousands)
See accompanying notes to financial statements.
F-28
PULSAR DATA SYSTEMS, INC.
Statements of Cash Flows (in thousands)
See accompanying notes to financial statements
F-29
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Pulsar Data Systems, Inc. (the Company) was incorporated in ------1984 under the laws of the State of Delaware. The Company is engaged primarily in the sale of computer hardware, software, peripheral equipment, and support services to governmental agencies and commercial enterprises throughout the United States. The Company was certified by the Small Business Administration under Section 8(a) of the Small Business Act and was therefore eligible to enter into contracts with agencies of the Federal Government on a limited competitive basis. The Company voluntarily withdrew in anticipation of graduation from the 8(a) program in June 1997.
A summary of the Company's significant accounting policies follows:
Revenue and cost recognition: Revenue is primarily derived from short-term ------firm-fixed price delivery order type contracts. Revenue from these contracts is recognized upon transfer of title, generally upon delivery. The Company also has time and material contracts. Revenue from time and material contracts is recognized on the basis of man-hours provided plus other reimbursable contract costs incurred during the period.
Cash and cash equivalents: For the purpose of reporting cash flows, the Company ------considers all highly-liquid investments purchased with a maturity of three months or less to be cash equivalents.
Inventory: Inventory consists primarily of computer hardware, purchased ------software and peripheral equipment. Inventory is stated at the lower of cost or market using the first-in, first-out (FIFO) method.
Property and equipment: Property and equipment are stated at cost. ------Depreciation and amortization is computed using straight-line and accelerated methods over the estimated useful lives of the related assets.
Income taxes: The Company has elected to be treated as an "S" Corporation under ------Subchapter "S" of the Internal Revenue Code. Consequently, the Company is not liable for Federal and state income taxes except to the extent that the Company operates in state jurisdictions that do not recognize "S" corporations. For the income related to activity in these states, the Company has provided for the resulting income taxes. Otherwise the stockholders are liable individually for income taxes on the Company's income.
F-30
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial credit risk: The Company's accounts receivable are derived primarily ------from contracts with governmental agencies and commercial enterprises. All accounts receivable are made on an unsecured basis.
Additionally, the Company maintains its cash in bank deposit accounts, which at times may exceed Federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash.
Estimates: The preparation of financial statements in conformity with generally ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following as of December 31, 1997 and 1998:
F-31
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 1997 and December 31, 1998:
F-32
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 4. DEFERRED COMPENSATION AND LIFE INSURANCE
Through December 31, 1996 the Company had a deferred compensation agreement with its President, which was funded through Company-owned life insurance policies.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The cash surrender value of these policies as of December 31, 1997 and 1998, was $1,416,000 and $216,000, respectively.
On December 31, 1997, the deferred compensation liability of $1,351,000 was forgiven by the President of the Company, and the liability was removed from the Company's balance sheet and included as a contribution to additional paid-in capital. In April 1998, the Company borrowed $1,494,000 against the cash surrender value of the life insurance policies to reduce amounts owed under the financing arrangement with IBM.
NOTE. 5. NOTES RECEIVABLE - RELATED PARTIES
Between July 1995 and June 1996, the Company made a series of eight loans aggregating $2.8 million to a related party. These loans bear interest at annual rates varying from 7.5% to 10.0% and were due on demand. Two of these loans were in the form of assignment of notes receivable to the Company from third parties in the aggregate principal amount of $623,000, which were assigned back to Pulsar in December 1997. At that time these notes were deemed uncollectible and written off to bad debt expense. The outstanding balance of these notes as of December 31, 1997 was $2,218,000.
In October 1995, a related party purchased the building to be occupied by the Company. This purchase was financed through a loan to the related party from a lending institution in the amount of $2.8 million, which was guaranteed by the Company and personally guaranteed by the shareholders of the Company. Following the acquisition of the building, the related party leased a portion of the property to the Company at fair market rents. Payments of rent under the lease were $1,042,000, $955,500 and $409,500 during the years ended December 31, 1996, 1997 and 1998, respectively. A portion of the rent expense incurred under the related party lease was used to offset the related party notes receivable balance. The amount of rent expense used to offset the notes receivable from the related party for the years ended December 31, 1996, 1997 and 1998 was $0, $182,000 and $344,000, respectively. In addition, the principal amount under the notes was reduced by $750,000 as payment of a fee for terminating the lease as of September 30, 1998. As of January 1, 1999, outstanding loans of $1,347,000 were converted into two promissory notes of $543,000 and $804,000, bearing interest at the rate of 7.5% per annum, payable monthly, and maturing upon the sales of each individual property. The face amount of these notes includes accrued interest of $149,000 which has not been reflected within the financial statements. Because of the relationship to the related party and the change in the terms of the notes receivable the notes have been classified as a component of stockholders equity as of December 31, 1998.
The Company had expected the collateral underlying the notes receivable from related party to be liquidated. The Company has been advised that this transaction is being delayed for an unspecified period of time. As the recoverability of the notes is dependent upon the liquidation of the collateral, the Company is unable to determine the recoverability of the notes receivable
F-33
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------and has established an allowance for the full amount of the notes as of December 31, 1998.
NOTE 6. LINE OF CREDIT
In May 1996, the Company obtained a line of credit from a financial institution. Under the line of credit, the Company may borrow up to the lessor of eligible receivables or $22,000,000. Interest accrued on the outstanding balance at a variable rate consistent with the bank's national commercial rate. The line is collateralized by all eligible accounts receivable, inventory, machinery, and equipment. In October 1997, the line of credit was converted to a term loan of $5,200,000. (See Note 8)
F-34
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 7. FINANCING ARRANGEMENT - IBM
The Company entered into an Inventory and Working Capital Financing Agreement, with IBM Global Finance Corporation (IBM) whereby the Company purchases, hardware and software from authorized suppliers and finances the purchases through IBM. The agreement provides for a credit line up to $35,000,000, which allows the Company to borrow up to 85% of the Company's eligible accounts
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document receivable, and up to 100% of the Company's on-hand inventory. The credit line is secured by substantially all assets of the Company and is personally guaranteed by the Company's stockholders.
At December 31, 1997 the interest rate on the line of credit was prime plus 1.75% or 2.00% depending on the nature of the borrowings. The effective interest rate at that date was 10.25% or 10.5%. Effective February 1, 1998, the financing agreement interest rate was increased to prime plus 2.375%. The effective interest rate at December 31, 1998 was 10.125%. For any amount that the outstanding advances exceed the formula borrowing base, interest was accrued at the rate of prime plus 6.5%.
The agreement provides for certain financial covenants to be met by the Company. At December 31, 1998 the Company was in violation of these covenants.
In August 1997, the Company was in violation of the related debt covenants and entered into a forbearance agreement with IBM. Subsequently the Company violated the forbearance agreement and received several amendments to the agreement. Pursuant to amendments of the forbearance agreement the Company is currently obligated to pay, at the Company's option, the lesser of: (i) warrants representing 4% of the Company on a fully diluted to basis, or (ii) pay $650,000, or (iii) pay a pro rata portion of the $650,000 is less than substantially all of the assets are sold. As the Company intends to pay $650,000, the Company has accrued this amount as of December 31, 1997. In further consideration of the forbearance agreement and the related amendments, the Company was obligated to pay $50,000 or issue warrants representing 0.5% of the Company on a fully diluted basis, per month from February through May, 1998. The Company has paid an aggregate of $200,000 which has been recorded as additional interest expense in 1998. These payments were made in lieu of the issuance of warrants to IBM.
An October 1998 amendment to the forbearance agreement decreased the credit line to $18,000,000 for the period through January 6, 1999, at which time the line will be further reduced to $15,000,000. The financing arrangement has a termination date of October 30, 1999.
A February 1999 amendment to the forbearance agreement decreased the credit line to $8,000,000 until further amended. A March 1999 amendment to the forbearance agreement increased the credit line to $9,000,000 for the period through April 30, 1999, at which time the line will be reduced to $8,000,000. The forbearance agreement expires on the anticipated merger and initial public offering (Note 14).
F-35
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 8. NOTES PAYABLE
Long-term debt consists of the following notes payable as of December 31, 1997, and 1998:
F-36
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 8. NOTES PAYABLE (CONTINUED)
Maturities on the notes payable as of December 31, 1998 due in future years are as follows:
NOTE 9. NOTES PAYABLE - VENDORS
Notes payable - vendors consist of notes payable to nine vendors which were entered into in August to December 1998 for a total of $5,884,216. The notes accrue interest at rates ranging from 10% to 12%, and are due in full during 1999. The balance at December 31, 1998 was approximately $3,948,000.
NOTE 10. REVENUE AND COST OF REVENUE
The breakout of service and product revenue and cost of revenue are as follows for the years ended December 31, 1996, 1997, and 1998.
F-37
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 11. LEASING ARRANGEMENTS
In January 1996, the Company entered into a lease with a related party for office space, which was due to expire in December 2000. In September 1998 this lease was terminated and the Company paid a $750,000 termination fee to the related party. The fee was offset against notes receivable owed from the related party. Deposits and other assets includes a deposit to be refunded from the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document related party of approximately $87,000. The Company has leased other office and warehouse space under separate lease agreements expiring through September 2003. Rent expense was $1,690,000, $811,000 and $1,252,000 for the years ended December 31, 1996, 1997 and 1998, respectively. Lease payments for the year ended December 31, 1998 were offset against interest receivable and notes receivable from the related party (see Note 5).
Future minimum rental payments required under these leasing arrangements as of December 31, 1998 are as follows:
NOTE 12. EMPLOYEE RETIREMENT PLAN
The Company has adopted a retirement plan under Section 401(k) of the Internal Revenue Code. The plan provides benefits to all employees who meet certain age and service eligibility requirements. Under the terms of the plan, the Company will match 50% of the first 6% of an employee's elective contribution. Company contributions for the years ended December 31, 1996, 1997 and 1998 were $71,000, $66,000, and $28,119, respectively.
NOTE 13. MAJOR CUSTOMERS
During the years ended December 31, 1996, 1997, and 1998, 61%, 60%, and 90%, respectively, of the Company's revenue was derived from contracts with the Federal Government. The receivable balance for these contracts at December 31, 1997 and 1998 was $19,075,000, and $9,135,000, respectively.
F-38
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS ------
NOTE 14. GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net operating loss of $11,016,000 and $7,396,000 for the years ended December 31, 1997, and 1998, respectively, and has a net capital deficiency of $1,810,000 and $10,494,000 at December 31, 1997 and 1998, respectively. At December 31, 1998, the Company is in violation of the financial covenants related to its financing agreement. These factors create a substantial doubt about the Company's ability to continue as a going concern. The Company is in negotiations to be acquired by another company. The combined company is in the process of preparing an initial public offering. The ability of the Company to continue as a going concern is dependent upon the success of the pending merger and initial public offering. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 15. CONTINGENT LIABILITIES
The Company had cost reimbursable type contracts with the Federal Government. Consequently, the Company is reimbursed based upon their direct expenses attributable to the contract, plus a percentage based upon overhead, material handling, and general and administrative expenses. The overhead, material handling, and general and administrative rates are estimates. Accordingly, if the actual rates as determined by the Defense Contract Audit Agency are below the Company's estimates, a refund for the difference would be due to the Federal Government. It is management's opinion that no material liability will result from any cognizant audit agency audits.
The Company is subject to several lawsuits and threatened actions relating to the non-payment of debts. Each of these amounts have been included as liabilities in the financial statements.
The Company has been named as a defendant in a lawsuit which claims breach of contract under which the Company was required to pay $500,000 over a thirty
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document month period plus a commission on contracts awarded as a result of the contract. The plaintiff claims damages in an amount in excess of $10 million. Based upon discussions with counsel, the Company believes that the case is without merit and intends to vigorously defend against the claim; however, the outcome of this matter cannot currently be determined. No amounts have been accrued in the financial statements relating to this matter.
The Company is also involved in various routine legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that any potential liability, arising from these claims against the Company not covered by insurance would be minimal.
F-39
The Company has guaranteed the mortgages on properties owned by a related party of approximately $5,100,000. Should the related party fail to perform under the terms of the agreement, the Company would incur a loss for the full amount of the guarantee.
As of March 31, 1999, the Company had not yet filed the Form 5500 Annual Return/Report for 1997 for its Employee Retirement Plan. The Form 5500 along with an audit report was due October 15, 1998. The Company may be assessed penalties by both the Department of Labor and the Internal Revenue Service for its late filing. The Company has provided for such penalties.
F-40
======We have not authorized any dealer, salesperson or any other person to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information. This prospectus does not offer to sell or buy any shares in any jurisdiction where it is unlawful.
______
TABLE OF CONTENTS
Until ______, 1999, all dealers that effect transactions in the registered securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
3,000,000 SHARES
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document LITRONIC INC.
COMMON STOCK
______
PROSPECTUS
______
BLUESTONE CAPITAL PARTNERS, L.P. PACIFIC CREST SECURITIES INC.
______, 1999
======
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of expenses incurred by Registrant in connection with the issuance and distribution of the securities being registered hereunder, other than underwriting discounts. All amounts are estimated except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee and the NASDAQ/NMS quotation fee
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, provides that a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at its request in such capacity in another corporation or business association, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if her acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 107(b)(7) of the Delaware General Corporation Law, as amended, permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not
II-1 be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the corporation or its shareholders, (b) for acts or omissions not in good faith or which involve intentional
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived an improper personal benefit.
Article V of the Registrant's Amended and Restated Certificate of Incorporation provides for the elimination of personal liability for a director for breach of fiduciary duty as permitted by 102(b)(7) of the Delaware General Corporation Law. Article VI of the Registrant's Amended and Restated By-Laws provide that the Registrant shall indemnify its directors, officers and employees to the full extent permitted by Section 145 of the Delaware General Corporation Law.
The Underwriting Agreement (filed as Exhibit 1 hereto) provides for indemnification by the Underwriters of the Registrant and its directors, officers and controlling persons for certain liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In February 1999 Registrant issued 100 shares of its common stock to Kris Shah, its promoter, in connection with the organization of the Registrant and this offering for $100. On the date of this prospectus, Registrant issued 3,870,593 shares of common stock to the shares of Litronic Industries, Inc. in exchange for all the outstanding capital stock of Litronic Industries, Inc.
The issuance of the securities in the transactions described above were deemed to be exempt from registration under the Securities Act in reliance on (a) Section 4(2) of the Securities Act and Regulation D promulgated thereunder as a transaction by an issuer not involving any public offering.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit No. Description
1 Form of Underwriting Agreement among the Registrant and the Underwriters*
2 Stock Exchange Agreement and Plan of Reorganization*
3.1 Certificate of Incorporation, as amended on February 5, 1999*
3.2 By-Laws of the Registrant*
3.3 Form of Amended and Restated Certificate of Incorporation*
4.1 Registration Rights Agreement*
4.2 Warrant Agreement*
5 Form of Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC re validity [to be filed by amendment]
10.1 Employment Agreement with Kris Shah*
10.2 Employment Agreement with William Davis*
10.3 Promissory Note from Dril-Tron, Inc. (Litronic Industries, Inc.) To Kris Shah dated December 12, 1994 in the principal amount of $210,822*
10.4 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington Trust Company dated June 23, 1995+
10.5 Business Loan Agreement between Pulsar Data Systems, Inc. and Wilmington Trust Company dated July 24, 1995+
10.6 Commercial Security Agreement between Pulsar Data Systems, Inc. and Wilmington Trust Company dated July 24, 1995+
10.7 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington Trust Company dated October 23, 1995+
10.8 Purchase Order between Loral Federal Systems Company and Litronic Industries, Inc. dated
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document November 17, 1995*
10.9 Loan and Security Agreement between Litronic Industries, Inc. and Fidelity Funding of California, Inc. dated June 27, 1996+
10.10 First Amendment to Loan and Security Agreement between Litronic Industries Inc. and Fidelity Funding, Inc. dated June 27,
II-3
1997*
10.11 Award Contract between Maryland Procurement Office and Litronic Industries, Inc. dated June 27, 1997+
10.12 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated August 8, 1997*
10.13 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated October 10, 1997*
10.14 Sublease Agreement between Litronic Industries, Inc. and E. I. du Pont de Nemours and Company dated October 20, 1997+
10.15 Inventory Working Capital and Finance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated October 30, 1997+
10.16 Lease and Service Agreement between Alliance Business Centers and Litronic Industries, Inc. dated January 6, 1999+
10.17 Lease Agreement between Airport Industrial Complex and Litronic Industries, Inc. dated December 4, 1997+
10.18 Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated December 31, 1997 in the principal amount of $900,000*
10.19 Revolving Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated December 31, 1997 in the principal amount of $2,900,000*
10.20 Revolving Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated December 31, 1997 in the principal amount of $2,000,000*
10.21 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated February 4, 1998*
10.22 Revolving Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated February 24, 1998 in the principal amount of $600,000*
10.23 Second Amendment to Loan and Security Agreement between Litronic Industries, Inc. and Fidelity Funding, Inc. dated March 1, 1998*
10.24 Litronic Industries, Inc. Stock Option Plan dated April 1, 1998*
10.25 Litronic Industries, Inc. Stock Option Plan dated February __, 1999*
10.26 Modification dated February 3, 1999 of Original GSA Contract+
II-4
GS-35F-4232D dated May 3, 1996+
10.27 Deed of Lease Agreement between Pulsar Data Systems, Inc. and Massachusetts Mutual Life Insurance Company dated August 11, 1998+
10.28 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated August 31, 1998*
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.29 Business Loan Agreement between Litronic Industries, Inc. and BYL Bank Group dated September 29, 1998+
10.30 Promissory Note from Litronic Industries, Inc. to BYL Bank Group dated September 29, 1998 in the principal amount of $3,800,000*
10.31 Promissory Note from Litronic Industries, Inc. to BYL Bank Group dated September 29, 1998 in the principal amount of $1,400,000*
10.32 Amendment to Forbearance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated October 8, 1998+
10.33 Promissory Note from Davis Holding Company to Pulsar Data Systems, Inc. dated January 1, 1999 in the principal amount of $804,342.08+
10.34 Promissory Note from Davis Holding Company to Pulsar Data Systems, Inc. dated January 1, 1999 in the principal amount of $543,017.40*
10.35 Letter Agreement between Pulsar Data Systems, Inc. and Wilmington Trust Company dated June 20, 1997*
10.36 Third Amendment to Loan and Security Agreement dated March 31, 1999
23.1 Form of Consent of KPMG LLP+
23.2 Form of Consent of KPMG LLP+
23.3 Form of Consent of Keller Bruner & Company, LLC+
27 Financial Data Schedule [To be filed by amendment]
99.1 Consent of Anthony Giraudo
(b) Financial Statement Schedules.
The following financial statement schedules are filed herewith:
Report of Independent Public Accountants
Schedule II -- Valuation and qualifying accounts
Other schedules have been omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements or notes thereto.
______* Previously filed.
+ Supercedes previously filed exhibit.
II-5
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof..
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, hereunto duly authorized, in the District of Columbia, on the 6th day of April, 1999.
Litronic Inc.
By: /s/ Kris Shah ------Kris Shah Chief Executive Officer and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Kris Shah Director, Chairman of the Board April 6, 1999 ------Kris Shah and Chief Executive Officer
* Chief Financial Officer and April 6, 1999 ------Thomas W. Seykora principal accounting officer
* Director, President and April 6, 1999 ------William W. Davis, Sr. Chief Operating Officer
* By: /s/ Kris Shah ------Kris Shah Attorney-in-Fact
II-7
PULSAR DATA SYSTEMS, INC.
SCHEDULE II
Valuation and Qualifying Accounts and Reserves Years ended December 31, 1996, 1997 and 1998 (Amounts in thousands)
______
* Amount charged directly to returned earnings as related balance is classified as an equity account.
S-1
EXHIBIT INDEX
Exhibit No. Description
1 Form of Underwriting Agreement among the Registrant and the Underwriters*
2 Stock Exchange Agreement and Plan of Reorganization*
3.1 Certificate of Incorporation, as amended on February 5, 1999*
3.2 By-Laws of the Registrant*
3.3 Form of Amended and Restated Certificate of Incorporation*
4.1 Registration Rights Agreement*
4.2 Warrant Agreement*
5 Form of Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC re validity [to be filed by amendment]
10.1 Employment Agreement with Kris Shah*
10.2 Employment Agreement with William Davis*
10.3 Promissory Note from Dril-Tron, Inc. (Litronic Industries, Inc.) To Kris Shah dated December 12, 1994 in the principal amount of $210,822*
10.4 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington Trust Company dated June 23, 1995+
10.5 Business Loan Agreement between Pulsar Data Systems, Inc. and Wilmington Trust Company dated July 24, 1995+
10.6 Commercial Security Agreement between Pulsar Data Systems, Inc. and Wilmington Trust Company dated July 24, 1995+
10.7 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington Trust Company dated October 23, 1995+
10.8 Purchase Order between Loral Federal Systems Company and Litronic Industries, Inc. dated November 17, 1995*
10.9 Loan and Security Agreement between Litronic Industries, Inc. and Fidelity Funding of California, Inc. dated June 27, 1996+
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.10 First Amendment to Loan and Security Agreement between Litronic Industries Inc. and Fidelity Funding, Inc. dated June 27,
1997*
10.11 Award Contract between Maryland Procurement Office and Litronic Industries, Inc. dated June 27, 1997+
10.12 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated August 8, 1997*
10.13 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated October 10, 1997*
10.14 Sublease Agreement between Litronic Industries, Inc. and E. I. du Pont de Nemours and Company dated October 20, 1997+
10.15 Inventory Working Capital and Finance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated October 30, 1997+
10.16 Lease and Service Agreement between Alliance Business Centers and Litronic Industries, Inc. dated January 6, 1999+
10.17 Lease Agreement between Airport Industrial Complex and Litronic Industries, Inc. dated December 4, 1997+
10.18 Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated December 31, 1997 in the principal amount of $900,000*
10.19 Revolving Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated December 31, 1997 in the principal amount of $2,900,000*
10.20 Revolving Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated December 31, 1997 in the principal amount of $2,000,000*
10.21 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated February 4, 1998*
10.22 Revolving Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated February 24, 1998 in the principal amount of $600,000*
10.23 Second Amendment to Loan and Security Agreement between Litronic Industries, Inc. and Fidelity Funding, Inc. dated March 1, 1998*
10.24 Litronic Industries, Inc. Stock Option Plan dated April 1, 1998*
10.25 Litronic Industries, Inc. Stock Option Plan dated February __, 1999*
10.26 Modification dated February 3, 1999 of Original GSA Contract+
GS-35F-4232D dated May 3, 1996
10.27 Deed of Lease Agreement between Pulsar Data Systems, Inc. and Massachusetts Mutual Life Insurance Company dated August 11, 1998+
10.28 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated August 31, 1998*
10.29 Business Loan Agreement between Litronic Industries, Inc. and BYL Bank Group dated September 29, 1998+
10.30 Promissory Note from Litronic Industries, Inc. to BYL Bank Group dated September 29, 1998 in the principal amount of $3,800,000*
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.31 Promissory Note from Litronic Industries, Inc. to BYL Bank Group dated September 29, 1998 in the principal amount of $1,400,000*
10.32 Amendment to Forbearance Agreement between Pulsar Data Systems, Inc. and IBM Credit Corporation dated October 8, 1998+
10.33 Promissory Note from Davis Holding Company to Pulsar Data Systems, Inc. dated January 1, 1999 in the principal amount of $804,342.08+
10.34 Promissory Note from Davis Holding Company to Pulsar Data Systems, Inc. dated January 1, 1999 in the principal amount of $543,017.40*
10.35 Letter Agreement between Pulsar Data Systems, Inc. and Wilmington Trust Company dated June 20, 1997*
10.36 Third Amendment to Loan and Security Agreement dated March 31, 1999
23.1 Form of Consent of KPMG LLP+
23.2 Form of Consent of KPMG LLP
23.3 Form of Consent of Keller Bruner & Company, LLC+
27 Financial Data Schedule [To be filed by amendment]
99.1 Consent of Anthony Giraudo
______* Previously filed.
+ Supercedes previously filed exhibit.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.4
COMMERCIAL GUARANTY
BORROWER: DAVIS HOLDING COMPANY C/O PULSAR DATA SYSTEMS, INC. 5000 PHILADELPHIA WAY SUITE H LANHAM, MD 20706
LENDER: WILMINGTON TRUST COMPANY C/L W H MAJOR RODNEY SQUARE NORTH 1100 NORTH MARKET STREET WILMINGTON, DE 19890
GUARANTOR: PULSAR DATA SYSTEMS, INC. 5000 PHILADELPHIA WAY SUITE H LANHAM, MD 20706
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without limitation the principal Note amount of Two Million Three Hundred Sixty Thousand & 00/100 Dollars ($2,360,000.00).
GUARANTY. For good and valuable consideration, PULSAR DATA SYSTEMS, INC. ("Guarantor") absolutely and unconditionally guarantees and promises to pay to WILMINGTON TRUST COMPANY ("Lender") or its order, in legal tender of the United States of America, the Indebtedness (as that term is defined below) of DAVIS HOLDING COMPANY ("Borrower") to Lender on the terms and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in this Guaranty:
BORROWER. The word "Borrower" means DAVIS HOLDING COMPANY. GUARANTOR. The word "Guarantor" means PULSAR DATA SYSTEMS, INC. GUARANTY. The word ''Guaranty" means this Guaranty made by Guarantor for the benefit of Lender dated JUNE 23, 1995.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all principal, (b) all interest, (c) all late charges, (d) all loan fees and loan charges, and (e) all collection costs and expenses relating to the Note or to any collateral for the Note. Collection costs and expenses include without limitation all of Lender's reasonable attorneys' fees and Lender's legal expenses, including court costs and fifteen percent (15%) of the principal plus accrued interest as attorneys' fees, if any sums owing under this Guaranty are
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document collected by or through an attorney-at-law, whether or not suit is instituted, and reasonable attorneys' fees and legal expenses for bankruptcy
PAGE 2 proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated JUNE 23, 1995, in the original principal amount of $2,360,000.00 from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory note or agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this guaranty shall not exceed at any one time the amount of the Indebtedness described above, plus all costs and expenses of (a) enforcement of this Guaranty and (b) collection and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the Indebtedness of Borrower to Lender either in the aggregate or at any one time. If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, the rights of Lender under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. The liability of Guarantor will be the aggregate liability of Guarantor under the terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of all Indebtedness within the limits set forth in the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all Indebtedness shall have been fully and finally paid and satisfied and all other obligations of Guarantor under this Guaranty shall have been performed in full. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation received by
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Lender from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. GUARANTOR AUTHORIZES LENDER, without notice or demand and without lessening Guarantor's liability under this Guaranty, from time to time: (a) to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (b) to alter, compromise, renew, extend, accelerate, or otherwise change one or
PAGE 3 more times the time for payment or other terms of the indebtedness or any part of the Indebtedness, including increases and decreases of the rate of interest on the Indebtedness; extensions may be repeated and may be for longer than the original loan term; (c) to take and hold security for the payment of this Guaranty or the indebtedness, and exchange, enforce, waive, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral; (d) to release, substitute, agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (e) to determine how, when and what application of payments and credits shall be made on the Indebtedness; (f) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (g) to sell, transfer, assign, or grant participations in all or any part of the Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (a) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (b) this Guaranty is executed at Borrower's request and not at the request of Lender; (c) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor's assets, or any interest therein; (d) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information provided to Lender is true and correct in all material respects and fairly presents the financial condition of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor since the date of the financial statements; and (f) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor's risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (a) to continue extending money or to extend other credit to Borrower; (b) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations; (c) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (d) to proceed directly against or exhaust any
PAGE 4 collateral held by Lender from Borrower, any other guarantor, or any other person; (e) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (f) to pursue any other remedy within Lender's power; or (g) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Guarantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Guarantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a) any "one action" or "anti-deficiency" law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (b) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness; (c) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any collateral for the Indebtedness; (e) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced there is outstanding Indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations; or (f) any defenses given to guarantors at law or in equity other than actual payment and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document performance of the Indebtedness. If payment is made by Borrower whether voluntarily or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower's trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of enforcement of this Guaranty. Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be
PAGE 5 contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the Indebtedness of Borrower to Lender, whether now existing or hereafter created, shall be prior to any claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring to Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor, from time to time to execute and file financing statements and continuation statements and to execute such other documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AMENDMENTS. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by Lender in the State of Delaware. This Guaranty shall be governed by and construed in accordance with the laws of the State of Delaware.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of Lender's costs and expenses, including reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court.
PAGE 6
NOTICES. All notices required to be given by either party to the other under this Guaranty shall be in writing and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier, or when deposited in the United States mail, first class postage prepaid, addressed to the party to whom the notice is to be given at the address shown above or to such other addresses as either party may designate to the other in writing. If there is more than one Guarantor, notice to any Guarantor will constitute notice to all Guarantors. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words "Borrower" and "Guarantor" respectively shall mean all and any one or more of them. The words "Guarantor," "Borrower," and "Lender" include the heirs, successors, assigns, and transferees of each of them. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty. If a court of competent jurisdiction finds any provision of this Guaranty to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances, and all provisions of this Guaranty in all other respects shall remain valid and enforceable. If any one or more of Borrower or Guarantor are corporations or partnerships, it is not necessary for Lender to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, or agents acting or purporting to act on their behalf, and any Indebtedness made or a created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of any of Guarantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
LIMITATION ON GUARANTY. Notwithstanding any other provision of this Guaranty, ------the liability of Guarantor under this Guaranty shall not exceed the amount which would render this Guaranty unenforceable, void or voidable under (s)548 of the Bankruptcy Code or by application of any Fraudulent Transfer or Fraudulent Conveyance statute. In the event that the Guarantor shall claim that the amount of its liability hereunder is less
PAGE 7 than the amount of the indebtedness, the burden of proof with respect to the amount of such liability shall rest with Guarantor in light of the fact that the information concerning and circumstances of the financial condition of such Guarantor are more readily available to and under the control of such Guarantor.
Waiver of Right to Trial by Jury. IN RECOGNITION OF THE HIGHER COSTS AND DELAY ------WHICH MAY RESULT FROM A JURY TRIAL, GUARANTOR AND LENDER WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING HEREUNDER, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO WITH RESPECT HERETO OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Waiver and Subordination. Guarantor irrevocably waives, disclaims and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------relinquishes all claims against Borrower which Guarantor otherwise has or would have by virtue of having executed this Guaranty, specifically including but not limited to all rights of indemnity, contribution or exoneration. In the event of the payment by Guarantor to Lender of any amount whatsoever and the resultant subrogation of Guarantor to the rights of Lender by reason of such payment, the amount of the remaining Indebtedness of Borrower to Lender after the payments by Guarantor pursuant to this Guaranty shall have priority over any claim that Guarantor may have against Borrower, whether or not Borrower is at such time or thereafter becomes insolvent. Guarantor further expressly subordinates any claim against Borrower upon any account whatsoever to any claim that Lender may have against Borrower at any time and for any reason.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
PAGE 8
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED JUNE 23, 1995.
GUARANTOR:
PULSAR DATA SYSTEMS, INC.
BY: /s/ William W. Davis President/CEO (SEAL) ------WILLIAM W. DAVIS, SR., PRESIDENT
BY: /s/ LILLIAN A. DAVIS (SEAL) ------LILLIAN A. DAVIS, EXECUTIVE VICE PRESIDENT
======
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.05
WILMINGTON TRUST
BUSINESS LOAN AGREEMENT
THIS BUSINESS LOAN AGREEMENT between PULSAR DATA SYSTEMS, INC. ("Borrower") and WILMINGTON TRUST COMPANY ("Lender") is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of July 24, 1995, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
BORROWER. The word "Borrower" means PULSAR DATA SYSTEMS, INC.. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates."
BUSINESS LOAN AGREEMENT Page 2 (continued) ======
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.
BUSINESS LOAN AGREEMENT Page 3 (continued) ======
NOTE. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security interests securing indebtedness owned by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and security obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
BUSINESS LOAN AGREEMENT Page 4 (continued) ======
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note; (b) Security Agreements granting to Lender security interests in the Collateral; (c) Financing Statements perfecting Lender's Security Interests; (d) evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel, including without limitation any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Delaware and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument
BUSINESS LOAN AGREEMENT Page 5 (continued) ======
binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document PROPERTIES. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The term "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to
BUSINESS LOAN AGREEMENT Page 6 (continued) ======
enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.
BUSINESS LOAN AGREEMENT Page 7 (continued) ======
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated plan or initiated steps to do so, and (iii) no steps have been taken to terminate any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 5000 PHILADELPHIA WAY SUITE H, LANHAM, MD 20706. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which would materially affect the financial condition of Borrower or the financial condition of any Guarantor.
BUSINESS LOAN AGREEMENT Page 8 (continued) ======
FINANCIAL RECORDS. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document reports with respect to Borrower's financial condition and business operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least twenty (20) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, on Lender's forms, and in the amounts and by the guarantors named below:
BUSINESS LOAN AGREEMENT Page 9 (continued) ======
Guarantors Amounts ------WILLIAM W. DAVIS, SR. $22,000,000.00 LILLIAN A. DAVIS $22,000,000.00
OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and will all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans.
BUSINESS LOAN AGREEMENT Page 10 (continued) ======
INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except U.S. federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (a) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (b) reduce the amounts payable to Lender under this
BUSINESS LOAN AGREEMENT Page 11 (continued) ======
Agreement or the Related Documents, or (c) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has
BUSINESS LOAN AGREEMENT Page 12 (continued) ======with Lender; (b) Borrower or any guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudicated a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender.
EVENT OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time or for any reason.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by
BUSINESS LOAN AGREEMENT Page 13 (continued) ======
any creditor of Borrower, any creditor of any Grantor against any collateral securing the indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of Delaware. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of NEW CASTLE County, the State of Delaware. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or
BUSINESS LOAN AGREEMENT Page 14 (continued) ======
counterclaim brought by either Lender or Borrower against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the Borrowers signing below is responsible for all obligations of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation reasonable attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including reasonable attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law.
BUSINESS LOAN AGREEMENT Page 15 (continued) ======
NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A
BUSINESS LOAN AGREEMENT Page 16 (continued) ======
waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender.
BUSINESS LOAN AGREEMENT Page 17 (continued) ======
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY 24, 1995.
BORROWER:
PULSAR DATA SYSTEMS, INC.
By: /s/ WILLIAM W. DAVIS, SR. (SEAL) By: /s/ LILLIAN A. DAVIS (SEAL) ------WILLIAM W. DAVIS, SR., PRESIDENT LILLIAN A. DAVIS, EXECUTIVE VICE PRESIDENT
LENDER:
WILMINGTON TRUST COMPANY
By: [AUTHORIZED SIGNATORY] ------Authorized Officer
======
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.06
WILMINGTON TRUST
COMMERCIAL SECURITY AGREEMENT
Borrower: PULSAR DATA SYSTEMS, INC. Lender: WILMINGTON TRUST COMPANY 5000 PHILADELPHIA WAY SUITE H C/L WH MAJOR LANHAM, MD 20706 RODNEY SQUARE NORTH 1100 NORTH MARKET STREET WILMINGTON, DE 19890
======
THIS COMMERCIAL SECURITY AGREEMENT is entered into between PULSAR DATA SYSTEMS, INC. (referred to below as "Grantor"); and WILMINGTON TRUST COMPANY (referred to below as "Lender"). For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
All inventory, accounts, general intangibles and equipment, together with the following specifically described property:
ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 2 (Continued)
In addition, the word "Collateral" includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above.
(b) All products and produce of any of the property described in this Collateral section.
(c) All accounts, contract rights, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section.
(e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default."
GRANTOR. The word "Grantor" means PULSAR DATA SYSTEMS, INC., its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness and their personal representatives, successors and assigns.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal, interest, and fees, costs, and expenses, if any, together with all modifications of and renewals, replacements and substitutions for any of the foregoing.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors and assigns.
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 3 (Continued)
NOTE. The word "Note" means the note or credit agreement dated July 24, 1995, in the principal amount of $22,000,000.00 from Grantor to Lender, together with all modifications of and renewals, replacements, and substitutions for the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the assumed business names of Grantor. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or theretofore shipped or delivered pursuant to a contract of sale, or
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 4 (Continued)
for services theretofore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located. Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locations as are acceptable to Lender. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Maryland, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 5 (Continued)
office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and insofar as the Collateral consists of accounts and general intangibles, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts and general intangibles. Insofar as the Collateral consists of inventory and equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, reasonable attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 6 (Continued)
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Publ L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis acceptable to Lender and issued by a company or companies acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least twenty (20) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document as Lender deems appropriate, including if it so chooses "single interest insurance," which will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 7 (Continued)
consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the property insured; (e) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (f) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 8 (Continued) expenses shall become a part of the Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and b e apportioned among and be payable with any installment payments to become due during either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's maturity. This Agreement also will secure payment of these amounts. Such rights shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on the Indebtedness.
[PARAGRAPH ILLEGIBLE]
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self- help,[illegible] or any other method by any creditor of Grantor or by any governmental agency against the Collateral or any other collateral [illegible] Indebtedness. This includes a garnishment of any of Grantor's deposit accounts with Lender.
[illegible] INDEBTEDNESS. Any of the [illegible] events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor [illegible].
[illegible] CHANGE. A material adverse change occurs in [illegible] financial condition or Lender believes the prospect of payment or [illegible] of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Maryland Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:
[illegible] INDEBTEDNESS. Lender may Declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay [illegible] and payable, without notice.
[illegible] COLLATERAL. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 9 (Continued)
Collateral contains other goods not covered by [illegible] at the time of repossession, grantor agrees Lender may take such other goods, provided that Lender [illegible] after repossession.
Sell THE COLLATERAL. Lender shall have full power to sell, [illegible] with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public [illegible]. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a [illegible] after which any private sale or any other [illegible] met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall have the following rights and remedies regarding the appointment of a receiver: (a) Lender may have a receiver appointed as a matter of right, (b) the receiver may be an employee of Lender and may serve without bond, and (c) all fees of the receiver and his or her attorney shall become part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a receiver, may collect the payments, rents, income and revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its nominee and receive the payments, rents, income and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper [illegible] in action, or similar property, Lender may [illegible] receipt for, settle, compromise, adjust, sue for,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document foreclose, or [illegible] on the Collateral as Lender may determine, whether or not [illegible] or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, [illegible], instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 10 (Continued)
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
AMENDMENT. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought [illegible] or bound by the [illegible].
APPLICABLE LAW. This Agreement shall be governed by, controlled and enforced in accordance with the laws of the State of Maryland. LENDER AND GRANTOR EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LENDER OR GRANTOR MAY BE PARTIES, ARISING OUT OF, OR IN ANY WAY PERTAINING TO, THIS AGREEMENT. IT IS AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY LENDER AND GRANTOR, AND LENDER AND GRANTOR EACH HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR [illegible] ITS EFFECT. GRANTOR FURTHER REPRESENTS THAT GRANTOR HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF GRANTOR'S OWN FREE WILL, AND THAT GRANTOR HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
ATTORNEYS' FEES; EXPENSES. Grantor agrees that if Lender hires an attorney to help enforce this Agreement or to collect any sums owing under this Agreement, Grantor will pay, subject to any limits under applicable law, Lender's reasonable attorneys fees, and all of Lender's other collection expenses, Whether or not there is a lawsuit and including without limitation additional legal expenses for bankruptcy proceedings.
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 11 (Continued)
CAPTION HEADINGS. Caption headings in this Agreement and for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
[ILLEGIBLE]; CORPORATE AUTHORITY. All obligations of Grantor under this Agreement shall be joint and several, and all references to Grantor [illegible] below is responsible for all obligations in this Agreement.
[ILLEGIBLE]. All notices required to be given [illegible] in writing, may be sent by facsimile, and shall be effective when actually delivered if hand delivered or when deposited [illegible] recognized overnight courier or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document deposited as certified or registered mail in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above, [illegible] formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent [illegible] by applicable law. If there is more than one Grantor, notice to any Grantor will constitute notice to all Grantors. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect [illegible] or other property which may now or hereafter become [illegible] all claims, instruments, receipts, checks, drafts or warrants [illegible] under the Collateral, and, in the place and stead of Grantor, to [illegible] claims or to take any action or institute or take part in any proceedings, either in its own [illegible] of Grantor, or otherwise, which in the discretion of Lender may seem to be [illegible] or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other person or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 12 (Continued) a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of the Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 24, 1995.
GRANTOR:
PULSAR DATA SYSTEMS, INC.
By: /s/ William W. Davis, Sr. (SEAL) By: /s/ LILLIAN A. DAVIS (SEAL) ------WILLIAM W. DAVIS, SR., PRESIDENT LILLIAN A. DAVIS, EXECUTIVE VICE PRESIDENT
LENDER:
WILMINGTON TRUST COMPANY
By: [AUTHORIZED SIGNATORY] ------Authorized Officer
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.07
COMMERCIAL GUARANTY (CONTINUED)
======
COMMERCIAL GUARANTY
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. ------
BORROWER: DAVIS HOLDING COMPANY, INC. LENDER: WILMINGTON TRUST COMPANY 5000 PHILADELPHIA WAY, SUITE H C/L W H MAJOR LANHAM, DE 20706 RODNEY SQUARE NORTH 1100 NORTH MARKET STREET WILMINGTON, DE 19890
GUARANTOR: PULSAR DATA SYSTEMS, INC. 5000 PHILADELPHIA WAY, SUITE H LAHNHAM MD 20706 ======
AMOUNT OF GUARANTY. THIS IS GUARANTY OF PAYMENT OF THE NOTE, INCLUDING WITHOUT LIMITATION THE PRINCIPAL NOTE AMOUNT OF TWO MILLION EIGHT HUNDRED THOUSAND & 00/100 DOLLARS ($2,800,000.00)
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, PULSAR DATA SYSTEMS, INC."GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO WILMINGTON TRUST COMPANY ("LENDER") OR ITS ORDER, IN LEGAL TENDER OF THE UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF DAVIS HOLDING COMPANY, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET FORTH IN THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used in this Guaranty:
BORROWER. The word "Borrower" means DAVIS HOLDING COMPANY, INC.
GUARANTOR. The word "Guarantor" means PULSAR DATA SYSTEMS, INC.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the benefit of Lender dated October 23, 1995.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all principal, (b) all interest, (c) all late charges, (d) all loan fees and charges, and (e) all collection costs and expenses relating to the Note or to any collateral for the Note or to any collateral for the Note. Collection costs and expenses include without limitation all of Lender's reasonable attorneys' fees and Lender's legal expenses, whether or not suit is instituted, and reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated October 23, 1995, IN THE ORIGINAL PRINCIPAL AMOUNT OF $2,800,000.00 from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancing of, consolidations of , and substitutions for the promissory note or agreement.
RELATED DOCUMENTS. The word "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements, documents, whether now or hereafter existing, executed in connection with the Indebtedness.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL NOT EXCEED AT ANY ONE TIME THE AMOUNT OF THE INDEBTEDNESS DESCRIBED ABOVE, PLUS ALL COSTS AND EXPENSES OF (A) ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION AND SALE OF ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the Indebtedness of Borrower to Lender either in the aggregate or at any one time. If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, the rights of Lender under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. The liability of Guarantor will be the aggregate liability of Guarantor under the terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of all Indebtedness within the limits set forth in the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all Indebtedness shall have been fully and finally paid and satisfied and all other obligations of Guarantor under this Guaranty shall have been performed in full. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation received by Lender from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. GUARANTOR AUTHORIZES LENDER, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE, RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS, INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OF IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (a) no representations or agreements of any kind have been made to Guarantor which would limit or quality in any way the terms of this Guaranty; (b) this Guaranty is executed at Borrower's request and not at the request of Lender; (c) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor's assets, or any interest therein; (d) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information provided to Lender is true and correct in all material respects and fairly presents the financial condition of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor since the date of the financial statements; and (f) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor's risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (a) continue lending money or to extend other credit to Borrower; (b) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document nonpayment related to any collateral, or notice of any action or nonaction on the part of the Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection
3 with the creation of new or additional loans or obligations; (c) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (d) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (e) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (f) to pursue any other remedy within Lender's power; or (g) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Guarantor may now have or hereafter have or acquires against Borrower, by subrogation or otherwise, so that at no time shall Guarantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a) any "one action" or "anti-deficiency" law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (b) any election of remedies by Lender with destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness; (c) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any collateral for the Indebtedness; (e) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced there is outstanding Indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations; or (f) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness. It payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to borrower's trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor s full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy.
SUBORDINATION OF BORROWERS DEBTS TO GUARANTOR. Guarantor agrees that the Indebtedness of Borrower to Lender, whether now existing or hereafter created, shall be prior to any claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring to Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor, from time to time to execute and file financing statements and continuation statements and to execute such other documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty.
4
CONFESSION OF JUDGMENT. Guarantor hereby irrevocably authorizes and empowers any attorney-at-law to appear in any court of record and to confess judgment against Guarantor for the unpaid amount of this Guaranty as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, plus attorneys' fees as provided in this Guaranty, plus costs of suit, and to release all errors, and waive all rights of appeal. If a copy of this Guaranty, verified by an affidavit, shall have been filed in the proceeding, it will not be necessary to file the original as a warrant of attorney. Guarantor waives the right to any say of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing warrant and power to confess judgment will be deemed to exhaust the power whether or not any such exercise shall be held by any court to be invalid voidable or void; but the power will continue undiminished and may be exercised from time to time as Lender may elect until all amounts owing on this Guaranty have been paid in full.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by Lender in the state of Delaware. If there is a lawsuit, Guarantor agrees upon lender's request to submit to the jurisdiction of the courts of NEW CASTLE County State of Delaware. Lender and Guarantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Guarantor against the other. This Guaranty shall be governed by and construed in accordance with the laws of the State of Delaware.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of Lender's costs and expenses including reasonable attorneys' fees and Lenders legal expenses incurred in connection with the enforcement of this Guaranty. Lender may pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' Fees and legal expenses whether or not there is a lawsuit including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional lees as may be directed by the court.
NOTICES. All notices required to be given by either party to the other under this Guaranty shall be in writing, may be sent by telefacsimile, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier, or when deposited in the United States mail, first class postage prepaid, addressed to the party to whom the notice is to be given at the address shown above or lo such other addresses as either party may designate to the other in writing. If there is more than one Guarantor, notice to any Guarantor will constitute notice to all guarantors. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words "Borrower" and "Guarantor" respectively shall mean all and any one or more of them. The words "Guarantor," "Borrower," and "Lender" include the heirs, successors, assigns, and transferees of each of them. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty. If a court of competent jurisdiction finds any provision of this Guaranty to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances, and all provisions of this Guaranty in all other respects shall remain valid and enforceable. If any one or more of Borrower or Guarantor are corporations or partnerships, it is not necessary for
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Lender to inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, or agents acting or purporting to act on their behalf, and any Indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty.
5
WAIVER. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of any of Guarantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
LIMITATION ON GUARANTY. Notwithstanding any other provision of this Guaranty, the liability of Guarantor under this Guaranty shall not exceed the amount which would render this Guaranty unenforceable, void or voidable under 548 of the Bankruptcy Code or by application of any Fraudulent Transfer or Fraudulent Conveyance statue. In the event that Guarantor shall claim that the amount of its liability hereunder is less than the amount of the Indebtedness, the burden of proof with respect to the amount of such liability shall rest with guarantor in light of the fact that the information concerning and circumstances of the financial condition of such Guarantor are more readily available to and under the control of such Guarantor.
WAIVER OF RIGHT TO TRIAL BY JURY. In recognition of the higher costs and delay which may result from a jury trial, guarantor and lender waive any right to trial by jury of any claim, demand, action or cause of action (1) arising hereunder, or (2) in any way connected with or related or incidental to the dealings of the parties hereto with respect hereto or any other instrument, document or agreement executed or delivered in connection herewith, in each case whether now existing or hereafter arising, and whether sounding in contract or tort or otherwise; and each party hereby agrees and consents that any such claim, demand, action or cause of action shall be decided by court trial without a jury, and that any party hereto may file an original counterpart or a copy of this section with any court as written evidence of the consent of the parties hereto to the waiver of their right to trial by jury.
WAIVER AND SUBORDINATION. Guarantor irrevocably waives, disclaims and relinquishes all claims against Borrower which Guarantor otherwise has or would have by virtue of having executed this Guaranty, specifically including but not limited to all rights of indemnity, contribution or exoneration. In the event of the payment by Guarantor to Lender of any amount whatsoever and the resultant subrogation of Guarantor to the rights of Lender by reason of such payment, the amount of the remaining Indebtedness of Borrower to Lender after the payments by Guarantor pursuant to this Guaranty shall have priority over any claim that Guarantor may have against Borrower, whether or not Borrower is at such time or thereafter becomes insolvent. Guarantor further expressly subordinates any claim against Borrower upon any account whatsoever to any claim that Lender may have against Borrower at any time and for any reason.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED OCTOBER 23, 1995.
GUARANTOR:
PULSAR DATA SYSTEMS, INC.
BY: /s/ WILLIAM H. DAVIS, SR. ------WILLIAM H. DAVIS, SR., PRESIDENT
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.09
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement"), dated as of June 27, 1996, is entered into by and between Litronic Industries, Inc., a California corporation (the "Company"), and Fidelity Funding of California, Inc., a California corporation ("Fidelity"). In consideration of the mutual covenants and agreements contained herein, the Company and Fidelity hereby agree as follows:
Section 1. Definitions and Construction.
1.1. When used herein, the following terms shall have the following meanings:
"Account" means the right of the Company to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not earned by performance.
"Account Debtor" means the Person obligated to make payment on an Account.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, or is controlled by or under common control with, such Person.
"Applicable Rate" means, as applicable, the Revolving Loan Rate, the Fixed Asset Loan Rate, the Standby Facility Rate or the Real Estate Contract Rate.
"Borrowing Base" means an amount equal to the sum, determined by Fidelity from time to time in its sole discretion, of (a) 85% of the face amount of Eligible Accounts, plus at Fidelity's option, (b) the lesser of (i) $600,000 or (ii) 50 % of the value of Eligible Inventory.
"Borrowing Base Certificate" means a certificate in the form attached hereto as Exhibit A, duly executed by an authorized officer of the company.
"Cash Collateral" has the meaning given to it in Section 10.
"Collateral" means all Personal Property Collateral and all Real Property.
"Concentration Limit" means, as of any date, an amount equal to 20% of the face amount of Accounts outstanding on such date; provided that with respect to Accounts owed by the United States or any department or instrumentality thereof, "Concentration Limits" means, as of any date, an amount equal to 50% of the face amount of such Accounts outstanding on such date.
"Current Assets" means, as of any date, only those assets of the Company that may, in the ordinary course of business, be converted into cash within a period of one year from such date, but excluding (a) amounts due from employees, officers, shareholders or directors of the
Company, (b) prepaid expenses for services or for supplies that are not purchased for resale, and (c) amounts due from Affiliates of the Company.
"Current Liabilities" means, as of any date, all obligations of the Company that are due within one year from such date.
"Debt" means, with respect to any Person, all indebtedness, obligations and liabilities of such Person, including without limitation: (a) all liabilities which would be reflected on a balance sheet of such Person prepared in accordance with GAAP, (b) all obligations of such Person in respect of any guaranty of a Debt or another Person, or (c) all obligations, indebtedness and liabilities secured by any lien on or security interest in any property or assets of such Person.
"Debt Coverage Ratio" means, for any period of three consecutive calendar months, the ratio of EBITDA for such period to the sum of Interest Expense for such period plus the Principal Repayment. For purposes of this definition, the term "Principal Repayment" means, as of any date, the Current Liabilities as of such date divided by four.
"EBITDA" means, for any period, the sum (determined without duplication, on a consolidated basis and in accordance with GAAP) of (a) the Company's net income (or net loss) for such period (including gains and losses from sales of assets in the ordinary course of business) before provision for income taxes, (b) the Interest Expense of the Company for such period, and (c)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document depreciation, amortization and all other non-cash charges of the Company during such period to the extent deducted in determining such net income.
"Eligible Accounts" means, at the time of determination thereof, all Accounts other than (i) any Account which is payable more than 30 days from invoice date, (ii) any Account which has been outstanding for more than 90 days from invoice date, (iii) any Account as to which Fidelity does not have a valid and perfected, first priority security interest, (iv) to the extent that the aggregate outstanding Accounts owed by any single Account Debtor exceeds the Concentration Limit, any Account owed by such Account Debtor, (v) any Account that is owed by an Account Debtor that is an Affiliate of the Company or an officer or employee of the Company, (vi) any Account that arises out of a sale made or services performed outside of the Untied States or that is owed by an Account Debtor located outside the United States, (vii) any Account that is owed by a creditor or supplier of the Company or with respect to which any defense, counterclaim or right of set off has been asserted, (viii) any Account owed by an Account Debtor if more than 25% (in dollar amount) of such Account Debtor's Accounts are 90 or more days past due, (ix) any Account that is owed by the United States or any department, agency or instrumentality thereof, unless the right to payment under such Account is assigned to Fidelity as Collateral in full compliance with the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727) and (x) any Account that has not been approved by Fidelity, in its sole and absolute discretion, for including in the Borrowing Base.
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"Eligible Inventory" means, at the time of determination, all raw materials and finished goods that are part of the Company's Inventory, valued at the lower of cost or market value, that (i) are owned by the Company, are located in the United States of America and, if located on leased or mortgaged premises, are subject to the terms of a lien waiver letter executed by the landlord or mortgagee of such premises if deemed necessary by Fidelity in its sole discretion, (ii) are ready for sale, and are not, in the opinion of Fidelity,damaged, obsolete or otherwise not readily salable at full value, (iii) have been held in Inventory for not more than 120 days, (iv) are not on lease or consignment or furnished under any contract of service from or to any Person, (v) are subject to an enforceable, first priority, perfected security interest in favor of Fidelity, (vi) are not the subject of an invoice giving rise to an Eligible Account, and (vii) have been approved by Fidelity, in its sole and absolute discretion for inclusion in the Borrowing Base.
"Eligible Machinery and Equipment" means, at the time of determination, all machinery and equipment, valued at the lower of cost or liquidation value, that (i) are owned by the Company, are located in the United States of America and, if located on leased or mortgaged premises, are subject to the terms of a lien waiver letter executed by the landlord or mortgagee of such premises if deemed necessary by Fidelity in its sole discretion, (ii) are not on lease or consignment to any Person, (iii) are subject to an enforceable, first priority, perfected security interest in favor of Fidelity, (iv) are not, in the opinion of Fidelity, damaged or obsolete, (v) are not fixtures, and (vi) have been approved by Fidelity, in its sole and absolute discretion for inclusion in the Borrowing Base.
"Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, rules, orders, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants or industrial, toxic or hazardous substances into the environment, or otherwise relating to the manufacture, processing, treatment, transport or handling of pollutants or industrial, toxic or hazardous substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto.
"ERISA Plan" means any pension benefit plan subject to Title IV of ERISA maintained by the Company or any Affiliate thereof with respect to which the Company has a fixed or contingent liability.
"Event of Default" has the meaning given it in Section 12.
"Fixed Asset Loan" has the meaning given to it in Section 3.
"Fixed Asset Loan Amount" means the lesser of (a) $1,000,000 or (ii) 85% of the forced liquidation value of the Eligible Machinery and Equipment as determined by an appraisal satisfactory to Fidelity.
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"Fixed Asset Loan Maturity Date" means the earlier to occur of (a) the Fixed Asset Loan Term Date or (b) the last day of the Term.
"Fixed Asset Loan Rate" means a rate of interest equal to the lesser of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) the Prime Rate in effect from time to time plus three percent (3%) per annum and (b) the maximum rate permitted by applicable law. The Fixed Asset Loan shall be automatically increased or decreased, as the case may be, without notice to the Company from time to time as of the effective date of each change in the Prime Rate.
"Fixed Asset Loan Term Date" means the date which is five years from the date hereof.
"GAAP" means generally accepted accounting principles and practices as promulgated by the American Institute of Certified Public Accountants, applied on a basis consistent with past practices.
"Indemnified Claims" means any and all claims, demands, actions, causes of action, judgments, liabilities, damages and consequential damages, penalties, fines, costs, fees, expenses and disbursements (including, without limitation, fees and expenses of attorneys and other professional consultants and experts in connection with any investigation or defense) of every kind, known or unknown, existing or hereafter arising, foreseeable or unforeseeable, which may be imposed upon, threatened or asserted against or incurred or paid by any Indemnified Person at any time and from time to time, because of, resulting from , in connection with or arising out of any transaction, act, omission, event or circumstance in any way connected with the Collateral or the Transaction Documents (including but not limited to enforcement of Fidelity's rights thereunder or the defense of Fidelity's actions thereunder), excluding with respect to any Indemnified Persons, any of the foregoing resulting from such Indemnified Person's gross negligence or willful misconduct.
"Indemnified Persons" means Fidelity and its officers, directors, shareholders, employees, attorneys, representatives and Affiliates.
"Intangible Assets" means such of the Company's assets as are treated as intangible pursuant to GAAP, including without limitation: (a) obligations owing by officers, directors, shareholders, employees, subsidiaries, Affiliates or any Person in which any such officer, director, shareholder, employee, subsidiary, or Affiliate owns any interest and (b) any asset which is intangible or lacks intrinsic or marketable value or collectibility, including but not limited to; goodwill, noncompetition agreements, patents, copyrights, trademarks, franchises, organization or research and development costs.
"Interest Expense" means, for any period, all interest charges paid or accrued by the Company during such period.
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"Inventory" means all goods, now owned or hereafter acquired by the Company, wherever located, that are held for sale or lease or are to be furnished under any contract of service (including, but not limited to raw materials, work in process, finished goods and materials used or consumed in the manufacture or production thereof, goods in which the Company has an interest in mass or a joint or other interest or rights of any kind, and goods which have been returned to or repossessed or stopped in transit by the Company).
"Late Payment Rate " means a per annum rate of interest equal to the lesser of (a) the Applicable Rate plus four percent (4%) and (b) the maximum rate permitted by applicable law.
"Mortgage" means the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated of even date herewith by and among the Company, First American Title Insurance Company, as trustee, and Fidelity, as beneficiary.
"Obligations" means all indebtedness, obligations and liabilities of the Company to Fidelity arising under the Transaction Documents, and all other indebtedness, obligations and liabilities of the Company to Fidelity, whether presently existing or hereafter arising, direct or indirect, primary or secondary, joint or several, fixed or contingent, and whether originally payable to Fidelity or to a third party and subsequently acquired by Fidelity.
"Person" means any individual, corporation, joint venture, partnership, trust, unincorporated organization or governmental entity or agency.
"Personal Property Collateral" has the meaning given it in Section 9.
"Prime Rate" means the rate per annum published from time to time by The Wall Street Journal as the base rate for corporate loans at large commercial banks (or, if more than one such rate is published, the higher or highest of the rates so published). If such rate is no longer published by The Wall Street Journal, then Fidelity shall, in its sole discretion substitute the base or prime rate for corporate loans at a large commercial bank for the base rate published in The Wall Street Journal. Such rate may not necessarily be the lowest or best rate actually charged to any customer of such commercial bank.
"Real Estate Loan" has the meaning given to it in Section 4.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Real Estate Loan Amount" means the lesser of (a) $2,200,000 or (ii) 75% of the appraised value of the Real Property as determined by an appraisal performed in accordance with the provisions of Section 6.1.
"Real Estate Loan Maturity Date" means the earlier to occur of (a) the Real Estate Term Date or (b) the last day of the Term.
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"Real Estate Loan Rate" means a rate of interest equal to the lesser of (a) the Prime Rate in effect from time to time plus three and one-half percent (3.5%) per annum and (b) the maximum rate permitted by applicable law. The Real Estate Loan Rate shall be automatically increased or decreased, as the case may be, without notice to the Company from time to time as of the effective date of each change in the Prime Rate.
"Real Estate Term Date" means the date which is seven years from the date hereof.
"Real Property" means the Company's administrative office, manufacturing, research and development facility located at 2950 Redhill Avenue, Costa Mesa, California.
"Remittance Address" means the address designated in writing by Fidelity.
"Revolver Advance" has the meaning given to it in Section 2.1.
"Revolver Commitment" means $2,500,000.
"Revolving Loan Rate" means a rate of interest equal to the lesser of (a) the Prime Rate in effect from time to time plus two percent (2%) per annum and (b) the maximum rate permitted by applicable law. The Revolving Loan Rate shall be automatically increased or decreased, as the case may be, without notice to the Company from time to time as of the effective date of each change in the Prime Rate.
"Shareholders Equity" means, as of any date, the shareholders' equity of the Company as of such date determined in accordance with GAAP.
"Standby Facility" has the meaning given it in Section 3A.1.
"Standby Facility Amount" means $250,000.
"Standby Facility Maturity Date" means the earlier to occur of (a) the Standby Facility Term Date or (b) the last day of the Term.
"Standby Facility Rate" means a rate of interest equal to the lesser of (a) the Prime Rate in effect from time to time plus three percent (3%) per annum and (b) the maximum rate permitted by applicable law. The Standby Facility Rate shall be automatically increased or decreased, as the case may be, without notice to the Company from time to time as of the effective date of each change in the Prime Rate.
"Standby Facility Term Date" means the date which is five years from the date hereof.
"Tangible Net Worth" means, as of any date, the amount obtained by subtracting the Company's Intangible Assets as of such date from the sum of (i) the Company's Shareholders'
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Equity as of such date plus (ii) all obligations for borrowed money owed by the Company to its shareholders, provided that such obligations have been subordinated to the Obligations on terms satisfactory to Fidelity in its sole discretion.
"Term" has the meaning given to it in Section 14.4.
"Termination Event" means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(b)(5) of ERISA or (ii) any other reportable event described in Section 4043(b) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA or (b) the withdrawal of the Company or any Affiliate of the Company from any ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Transactions Documents" means this Agreement, the Mortgage, and all other documents and instruments executed and delivered in connection therewith.
"UCC" means the Uniform Commercial Code as in effect in the applicable jurisdiction.
"Working Capital" means, as of any date, the excess of Current Assets over Current Liabilities as of such date, provided that any Revolver Advances outstanding as of such date shall, for purposes of the calculation of Working Capital be treated as Current Liabilities regardless of their characterization under GAAP.
1.2. Terms defined in the UCC and used but not defined herein shall have the meanings ascribed to them in the UCC.
1.3. References herein to a particular agreement, instrument or document also shall be deemed to refer to and include all renewals, extensions and modifications of such agreement, instrument or document. All addenda, exhibits and schedules attached to this Agreement are a part hereof for all purposes. Words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.
1.4. All interest accruing on the outstanding Revolver Advances shall be calculated on the basis of actual days elapsed (including the first but excluding the last day) plus three (3) business days and a year of 360 days. All interest otherwise accruing hereunder shall be calculated on the basis of actual days elapsed (including the first but excluding the last day) and a year of 360 days. Unless otherwise expressly provided herein or unless Fidelity otherwise consents, all financial statements and reports furnished to Fidelity hereunder shall be prepared, and all financial computations and determinations pursuant hereto shall be made, in accordance with GAAP. All payments received by Fidelity after its internally established time for closing
7 business on any business day shall be applied as of the next succeeding business day. Any payment which is due on a day which is not a business day shall instead be deemed to be due on the next succeeding business day, and interest thereon shall accrue and be payable at the then applicable rate during the time of such extension. Fidelity's records in respect of loans advanced, accrued interest, payments received and applied and other matters in respect of calculation of the amount of the Obligations shall be deemed conclusive absent demonstration of error. All statements of account rendered by Fidelity to the Company relating to principal, accrued interest or costs owing by the Company under this Agreement shall be presumed to be correct and accurate unless, within 30 days after receipt thereof, the Company shall notify Fidelity in writing of any claimed error therein.
Section 2. Revolver Advances.
2.1. Subject to the terms of this Agreement, including, without limitation, Section 6, Fidelity shall make advances to the Company (each a "Revolver Advance and collectively the "Revolver Advances") from time to time during the Term; provided, however, that the aggregate principal amount of Revolver Advances outstanding at any time shall not exceed the lesser of (i) Borrowing Base determined by Fidelity from time to time and (ii) the Revolver Commitment. Ech Revolver Advance must be greater than or equal to $5,000 or must equal the unadvanced portion of the Borrowing Base. The Company hereby agrees to repay to Fidelity all Revolver Advances made to the Company hereunder, together with interest thereon, in the manner provided herein. The principal owing hereunder in respect of the Revolver Advances at any given time shall equal the aggregate amount of Revolver Advances made hereunder minus all principal payments on the Revolver Advances received by Fidelity hereunder. Subject to the terms and conditions hereof, the Company may borrow, repay and reborrow Revolver Advances under this Agreement.
2.2 Each request by the Company to Fidelity for a Revolver Advance hereunder must be in writing or promptly confirmed in writing. Each such written request or confirmation shall be accompanied by a "Borrowing Base Certificate" in the form attached hereto as Exhibit "A," together with (i) one copy of an invoice for each Account described in such Borrowing Base Certificate and evidence of shipment of the sale of goods or services covered thereby, (ii) any necessary waivers and releases for labor, services, equipment or material of the Company or any other Person on Fidelity's form, and (iii) a schedule of Eligible Inventory, setting forth the location of all such Inventory, including Eligible Inventory not in the possession of the Company and the name of the Person in possession thereof.
2.3. Promptly after receiving each Borrowing Base Certificate, Fidelity shall, based upon such Borrowing Base Certificate and such other information available to Fidelity, redetermine the Borrowing Base, which redetermination shall take effect immediately and remain in effect until the next such redetermination. If all conditions precedent to any Revolver Advance requested have been met, Fidelity will on the date requested make such Revolver Advance
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document available to the Company by wire transfer to the account designated in writing by the
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Company. In the event Fidelity does not receive an appropriately completed Borrowing Base Certificate, Fidelity shall have no obligation to redetermine the Borrowing Base or make any additional Revolver Advances hereunder.
2.4. If the aggregate unpaid principal balance of the Revolver Advances exceeds the Borrowing Base at any time, the Company shall, upon receipt of notice thereof from Fidelity, immediately repay the principal of the Revolver Advances in an amount at least equal to such excess. Any principal repaid pursuant to this Section 2.4. shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Transaction Documents.
2.5. The aggregate unpaid principal balance of the Revolver Advances shall bear interest at the Revolving Loan Rate in effect from time to time. All accrued and unpaid interest on the Revolver Advances shall be due and payable by the Company to Fidelity on the last day of each calendar month.
2.6. The aggregate unpaid principal balance of the Revolver Advances plus all accrued but unpaid interest thereon shall be payable by the Company to Fidelity on the last day of the Term.
Section 3. Fixed Asset Loan.
3.1. Subject to the terms and conditions hereof, including, without limitation, Section 6, Fidelity agrees to make a loan to the Company in an amount equal to the Fixed Asset Loan Amount. The Company hereby agrees to repay to Fidelity the Fixed Asset Loan, together with interest thereon, in the manner provided herein. The principal owing hereunder in respect of the Fixed Asset Loan at any given time shall equal the Fixed Asset Loan Amount minus all principal payments on the Fixed Asset Loan received by Fidelity hereunder.
3.2. If upon receipt of any appraisal of the Eligible Machinery and Equipment (or upon such other information then available to Fidelity) Fidelity determines that the liquidation value of the Eligible Machinery and Equipment is less than the outstanding principal balance of the Fixed Asset Loan, the Company shall, upon receipt of notice thereof from Fidelity, immediately repay the principal of the Fixed Asset Loan in an amount at least equal to such excess. Any principal repaid pursuant to this Section 3.2 shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Transaction Documents.
3.3. The aggregate unpaid principal balance of the Fixed Asset Loan shall bear interest at the Fixed Asset Loan Rate in effect from time to time. All accrued and unpaid interest on the Fixed Asset Loan shall be due and payable by the Company to Fidelity on the last day of each calendar month.
3.4. Prior to the Fixed Asset Loan Maturity Date, principal of the Fixed Asset Loan shall be payable in monthly installments, due and payable on the last day of each calendar month,
9 in an amount which would amortize the principal of the Fixed Asset Loan in full on the Fixed Asset Loan Term Date, which amounts shall be set forth in a schedule prepared by Fidelity and provided to the Company. The aggregate principal balance of the Fixed Asset Loan plus all accrued but unpaid interest thereon shall be due and payable by the Company to Fidelity on the Fixed Asset Loan Maturity Date.
Section 3A. Standby Facility.
3A.1. Subject to the terms and conditions hereof, including, without limitation, Section 6, Fidelity agrees to make a loan to the Company in an amount equal to the Standby Facility Amount. The Company hereby agrees to repay to Fidelity the Standby Facility, together with interest thereon, in the manner provided herein. The principal owing hereunder in respect of the Standby Facility at any given time shall equal the Standby Facility Amount minus all principal payments on the Standby Facility received by Fidelity hereunder.
3A.2. The aggregate unpaid principal balance of the Standby Facility shall bear interest at the Standby Facility Rate in effect from time to time. All accrued and unpaid interest on the Standby Facility shall be due and payable by the Company to Fidelity on the last day of each calendar month.
3A.3. Prior to the Standby Facility Maturity Date, principal of the Standby Facility shall be payable in monthly installments, due and payable on the last day of each calendar month, in an amount which would amortize the principal of the Standby Facility in full on the Standby Facility Term Date, which amounts shall be set forth in a schedule prepared by Fidelity and provided
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to the Company. The aggregate principal balance of the Standby Facility plus all accrued but unpaid interest thereon shall be due and payable by the Company to Fidelity on the Standby Facility Maturity Date.
Section 4. Real Estate Loan.
4.1. Subject to the terms and conditions hereof, including, without limitation, Section 6, Fidelity agrees to make a loan to the Company in an amount equal to the Real Estate Loan Amount. The Company hereby agrees to repay to Fidelity the Real Estate Loan, together with interest thereon, in the manner provided herein. The principal owing hereunder in respect of the Real Estate Loan at any given time shall equal the Real Estate Loan Amount minus all principal payments on the Real Estate Loan received by Fidelity hereunder.
4.2. The aggregate unpaid principal balance of the Real Estate Loan shall bear interest at the Real Estate Loan Rate in effect from time to time. All accrued and unpaid interest on the Real Estate Loan shall be due and payable by the Company to Fidelity on the last day of each calendar month.
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4.3. Beginning one year after the date hereof and prior to the Real Estate Loan Maturity Date, principal shall be payable in monthly installments, due and payable on the last day of each calendar month, in an amount which would amortize the principal of the Real Estate Loan in full on the Real Estate Loan Term Date, which amounts shall be set forth in a schedule prepared by Fidelity and provided to the Company. The aggregate principal balance of the Real Estate Loan plus all accrued but unpaid interest thereon shall be due and payable by the Company to Fidelity on the Real Estate Loan Maturity Date.
Section 5. Fees.
5.1. The Company shall pay to Fidelity an annual commitment fee in the amount of $44,000, payable on the date hereof and on each anniversary of the date hereof during the Term; provided that when the Real Estate Loan has been repaid in full, the commitment fee shall be reduced to 1% of sum of (i) the Revolver Commitment and (ii) the then outstanding principal balance of the Fixed Asset Loan (prorated during the year in which such reduction occurs). The Company hereby authorizes Fidelity, at its sole discretion, to deduct the commitment fee from any Advance hereunder.
5.2. As consideration for Fidelity's commitment to advance funds hereunder the Company shall pay to Fidelity a minimum usage fee (in this section called the "Minimum Usage Fee") of not less than $15,000 for each calendar month (or fraction thereof, on a prorated basis) during the Term. In the event that the income earned by Fidelity during any calendar month (or fraction thereof on a prorated basis) pursuant to Sections 2.5 and 5.3 is less than the Minimum Usage Fee, the Company shall pay to Fidelity the difference between the amount so earned by Fidelity and the Minimum Usage Fee, regardless of Fidelity's prior compensation. The Minimum Usage Fee for each calendar month shall be due and payable on the first day of the next calendar month.
5.3. The Company shall pay to Fidelity a monthly servicing fee in an amount equal to .13% of the average monthly outstanding balance of the Revolver Advances for each calendar month. The monthly servicing fee for each calendar month shall be due and payable on the first day of the next calendar month.
5.4. In addition to, and not in lieu of, any termination fee required by Section 14.4, the Company shall pay to Fidelity a liquidation fee (in this section called the "Liquidation Fee") in the amount of two percent (2%) of the face amount of each Eligible Account included in the Borrowing Base that is outstanding at any time during the Liquidation Period (as defined below) and that Fidelity collects following collection efforts by Fidelity and excluding collections in the ordinary course of business (i.e. paid within 30 days). The Liquidation Fee shall be payable on the date on which Fidelity collects the applicable Eligible Account. For purposes of this section, the term "Liquidation Period" means a period beginning on the earliest of (i) the date of commencement against or by the Company of any voluntary or involuntary case under the federal Bankruptcy Code, (ii) the date of any general assignment by the Company for the benefit of its
11 creditors; (iii) the date of any appointment or taking possession by a receiver, liquidator, assignee, custodian or similar official of all or a substantial part of the Company's assets, or (iv) the date of the cessation of business of the Company and ending on the date on which Fidelity has actually received all fees, costs, expenses and other amounts owing to it hereunder.
5.5. Contemporaneously with the execution and delivery hereof, the Company shall pay to Fidelity (i) a fee of $12,000 to cover the costs of the negotiation, preparation, execution and delivery of the Transaction Documents, including the fees, if any, of outside legal counsel, and (ii) costs of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document preparation of mortgage on the Real Property and a review of the title commitment and title insurance policy on the Real Property. In addition, the Company shall pay or reimburse Fidelity upon demand for all other costs and expenses incurred by Fidelity in connection with its due diligence review of the Company and the closing of the transactions contemplated hereby and all reasonable attorney's fees, court costs and other expenses incurred by Fidelity (whether or not litigation is commenced or judgment issued, and if litigation is commenced whether at trial or any appellate level) in connection with the enforcement by Fidelity of this Agreement or any other Transaction Document, the protection or enforcement of Fidelity's interest in the Collateral, the collection by Fidelity of the Collateral, or the representation of Fidelity in connection with any bankruptcy case or insolvency proceeding involving the Company, the Collateral, or any Account Debtor, including, without limitation, any representation involving relief rom a stay motion, a cash collateral dispute, an assumption or rejection motion or a dispute concerning any proposed disclosure statement and plan proposed in any such proceeding.
5.6. Fidelity shall be entitled to collect upon demand its normal and customary charges for the following routine services provided or obtained in the course of performing its functions with respect to the Collateral: lock box charges and wire transfers.
5.7. All interest, fees and other amounts due to Fidelity pursuant to this Section 5 shall be payable on demand, and may, in Fidelity's sole discretion, be deducted from Revolver Advances or paid from the Cash Collateral. All past due amounts owed hereunder, including but not limited to, past due interest, fees and other amounts, that are not paid when due shall bear interest from the date due until paid at the Late Payment Rate.
Section 6. Conditions Precedent to the Loans.
6.1. Fidelity shall not be obligated to make the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or any Revolver Advance hereunder (including the first) until it shall have received the following documents, duly executed in form and substance satisfactory to Fidelity and its counsel:
(a) continuing unconditional and absolute guaranty by Kris Shah of all Obligations;
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(b) a certificate executed by the President and the Secretary of the Company certifying (i) the names and signatures of the officers of the Company authorized to execute Transaction Documents, (ii) the resolutions duly adopted by the Board of Directors of the Company authorizing the execution of this Agreement and the other Transaction Documents, and (iii) correctness and completeness of the copy of the bylaws of the Company attached thereto;
(c) a certificate executed by the President and the Chief Financial Officer of the Company certifying the satisfaction of the conditions set forth in Section 7;
(d) certificates regarding the due formation, valid existence and good standing of the Company in the state of its organization issued by the appropriate governmental authorities in such jurisdiction;
(e) a release executed by the Bank of Yorba Linda releasing all liens and security interests of the Bank of Yorba Linda in the Collateral;
(f) a release executed by Finova releasing all liens and security interests of Finova in the Collateral;
(g) endorsements naming Fidelity as an additional insured or loss payee, as appropriate, on all liability insurance and all property insurance policies of the Company;
(h) a satisfactory appraisal of the Real Property by an appraiser acceptable to Fidelity;
(i) a satisfactory appraisal of the eligible Machinery and Equipment dated within one month of the date hereof by an appraiser acceptable to Fidelity;
(j) a commitment for title insurance on the Real Property, acceptable to Fidelity;
(k) the Mortgage;
(l) a Subordination Agreement executed by Kris Shah (the "Subordination Agreement").
6.2. Fidelity shall not be obligated to make the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or any Revolver Advance hereunder (including the first), unless (i) all representations and warranties made by the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Company in the Transaction Documents are true on and as of the date of the making of the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or such Revolver Advance as if such representations and warranties had been made as of the date thereof, (ii) the Company has performed and complied with all agreements and conditions required in the Transactions Documents to be performed or complied with by it on or prior to such date, (iii) no Event of Default or any event or circumstance that, with the passage of time, the giving of notice or both, would become an Event of Default shall have occurred, (iv)
13 the making of the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or such Revolver Advance shall not be prohibited by any law or any regulation or any order of any court or governmental agency or authority, (v) the Company shall have not repudiated or made any anticipatory breach of any of its obligations under any Transaction Document, and (vi) Fidelity shall have approved the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or such Revolver Advance in its sole discretion.
Section 7. The Company's Representations and Warranties. The Company represents and warrants to Fidelity on the date hereof, and shall be deemed to represent and warrant to Fidelity on the date on which the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or any Revolver Advance is made to the Company hereunder, that:
7.1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, with all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to conduct its business as presently conducted. The Company is duly qualified and authorized to do business as a foreign corporation and is in good standing in all states in which such qualification and good standing are necessary for the conduct by the Company of its business or the performance by the Company of its obligations hereunder. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party do not and will not constitute (a) a violation of any applicable law or the Company's articles or certificate of incorporation or bylaws or (b) a material breach of any other document, agreement or instrument to which the Company is a party or by which the Company is bound. This Agreement and the other Transactions Documents to which the Company is a party have been duly authorized, executed and delivered by the Company, and are legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms. No consent of, approval by, registration or filing with or authorization from any governmental authority or agency is required in connection with the execution, delivery or performance by the Company of this Agreement or the other Transaction Documents to which it is a party.
7.2. None of the Eligible Accounts, the Eligible Inventory, the Eligible Machinery and Equipment, the Real Property or any other Collateral is subject to any lien, encumbrance, security interest or other claim of any kind or nature, except for those liens that will be released upon the funding of the first advance hereunder. The Company has not transferred, sold, pledged or given a security interest in any of its Accounts, Inventory, machinery or equipment to anyone other than Fidelity. There are no financing statements on file in any public office governing any property of the Company of any kind, real or personal, in which the Company is named in or has signed as the debtor, except the financing statement or statements filed or to be filed in respect of this Agreement or those statements on file that were disclosed in writing by the Company to Fidelity prior to the execution and delivery of this Agreement.
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7.3. The Company is the sole owner and holder of, and has good and defensible title to, all Collateral.
7.4. The amount of each Eligible Account is due and owing to the Company and represents an accurate statement of a bona fide sale, delivery and acceptance of Inventory or performance of service by the Company to or for an Account Debtor. The terms for payment of the Eligible Accounts are 30 days from date of invoice and the payment of the Eligible Accounts is not contingent upon the fulfillment by the Company of any further performance of any nature whatsoever. There are no set-offs, allowances, discounts, deductions, counterclaims against the Eligible Accounts or any claims by Account Debtors, of any kind whatsoever, valid or invalid, that have been or may be asserted as a basis for refusing to pay an Eligible Account, in whole or in part, either at the time it is accepted by Fidelity for inclusion in the Borrowing Base or prior to the date it is to be paid. To the best of the Company's knowledge, each Account Debtor's business is solvent. The Company has served or caused to be served any and all preliminary notices required by law to perfect or enforce any mechanic's lien or stop notice or bonded stop notice for the Eligible Accounts and the information contained in those notices is true and correct to the best of the Company's knowledge.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 7.5. The address set forth below the Company's signature hereon is, and for at least the last six months has been, the Company's mailing address, its chief executive office, its principal place of business, the office where all of the books and records concerning the Eligible Accounts are maintained and the location of all Collateral. Prior to January 4, 1995, the Company's legal name was Dril-Tron, Inc. The Company does not transact business, and has not transacted business during the past five years, under any trade, fictitious or assumed name, other than Dril-Tron, Inc. and those set forth under the Company's signature hereon. During the past five years, the Company has not been a party to a merger or consolidation and has not acquired all or substantially all of the assets of any Person.
7.6. The Company has filed all tax reports and returns required to be filed by it and has paid, when due and payable, all federal, state and local taxes and governmental charges imposed upon the Company.
7.7. The Company is in compliance with ERISA, and is not required to contribute to any "multiemployer plan" as defined in Section 4001 of ERISA. The Company has conducted its business in material compliance with all applicable laws, including but not limited to, applicable Environmental Laws, and maintains and is in compliance with all licenses and permits required under any such laws to conduct its business and perform its obligations hereunder. The Company does not have any known material contingent liability under any Environmental Law.
7.8. The application made by the Company to Fidelity in connection with this Agreement and the statements made therein and in any materials furnished in connection therewith are true and correct as of the date hereof. All financial statements furnished by the
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Company to Fidelity in connection with such application were prepared in accordance with GAAP and fairly present the financial condition and results of operations of the Company as of the dates and for the periods indicated therein.
7.9. There is no fact which the Company has not disclosed to Fidelity in writing which could materially adversely affect the properties, business or financial condition of the Company, or any of the Collateral, or which it is necessary to disclose in order to keep the foregoing representations and warranties from being misleading.
Section 8. Covenants of the Company. From the date hereof and until the payment and performance is full of all of the Obligations, the Company covenants with Fidelity that:
8.1. The Company shall preserve and maintain its corporate existence, good standing and authority to transact business in all jurisdiction where necessary for the proper conduct of its business, and shall maintain all of its properties, rights, privileges and franchises necessary in the normal conduct of its business.
8.2. The Company shall permit Fidelity and its representatives, including any appraisers, auditors and accountants selected by Fidelity, to inspect any of the Collateral at any time during normal business hours. In addition, Fidelity shall have the right, from time to time, to audit the Company's books and records upon reasonable notice to the Company; provided that so long as no Event of Default has occurred and is continuing, Fidelity shall not conduct more than one audit per calendar quarter. The Company shall pay all costs associated with any such audits at the rate of $700 per day per auditor plus reasonable out-of-pocket expenses.
8.3. The Company shall maintain its books and records in accordance with GAAP. The Company shall furnish Fidelity, upon request, such information and statements as Fidelity shall request from time to time regarding the Company's business affairs, financial condition and results of its operations. Without limiting the generality of the foregoing, the Company shall provide Fidelity, on or prior to the last day of each month, unaudited consolidated and consolidating financial statements with respect to the prior month and, within 90 days after the end of each of the Company's fiscal years, audited annual consolidated financial statements and such certificates relating to the foregoing as Fidelity may request including, without limitation, a monthly certificate from the president and chief financial officer of the Company stating whether any events of Defaults have occurred and stating in detail the nature thereof. The Company shall provide Fidelity a Borrowing Base Certificate, appropriately completed and with all attachments, at any time that Fidelity shall request and on or before the last day of any calendar week in which the company does not request a Revolver Advance. In addition, the Company shall furnish to Fidelity upon request a current listing of all open and unpaid accounts payable and accounts receivable, names, addresses and contact persons for Account Debtors, and such other items of information that Fidelity may deem necessary or appropriate from time to time. The Company immediately shall notify Fidelity in writing upon becoming aware of the existence of any condition or circumstance that constitutes an Event of Default or that would, with the giving
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of
16 notice, the passage of time or both, constitute an Event of Default. Any such written notice shall specify the nature of such condition or circumstance, the period of the existence thereof and the action that the Company proposes to take with respect thereto.
8.4. The Company promptly shall notify Fidelity of any attachment or any other legal process levied against the Company and any action, suit, proceeding or other similar claim of $25,000 or more initiated against the Company.
8.5. The Company shall keep and maintain adequate insurance by insurers acceptable to Fidelity with respect to its business and all Collateral, provided that in no event shall such insurance coverage be less than the coverage set forth on Exhibit "B." Fidelity agrees that as to the Collateral in existence as of the date hereof, the coverage set forth on Exhibit "B" is satisfactory. Such insurance shall cover loss, damages and liability of amounts not less than reasonably requested by Fidelity and shall include, at a minimum, business interruption insurance, insurance for workers compensation, general premises liability, fire, casualty, theft and all risk. The Company shall cause Fidelity to be an additional insured and loss payee under all policies of insurance covering any of the Collateral, to the extent of Fidelity's interest. The Company shall deliver copies of each insurance policy to Fidelity upon request.
8.6. The Company shall file all tax reports and returns required to be filed by it in the manner and at the times required by applicable law, and shall pay all federal, state and local taxes and charges imposed upon the Company when due.
8.7. The Company shall comply with ERISA and shall not become required to contribute to any "multiemployee plan" as defined in Section 4001 of ERISA. The Company shall conduct its business in material compliance with all applicable laws, and shall maintain and comply with all licenses and permits required under any such laws to conduct its business and perform its obligations hereunder. Without limiting the generality of the foregoing, the Company shall comply in all material respects with all Environmental Laws now or hereafter applicable to the Company and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations. The Company promptly shall furnish to Fidelity all written notices of violation, complaints, penalty assessments, suits or other proceedings received by the Company with respect to any alleged violation of or non-compliance with any Environmental Laws.
8.8. The Company shall maintain a Tangible Net Worth of not less than (i) a negative $100,000 at any time after the date hereof, and (ii) the sum of a negative $100,000 plus the greater of (A) $750,000 or (B) the net income of the Company for its fiscal year 1996 at any time after December 30, 1996.
8.9. The Company shall maintain an Debt Coverage Ratio (determined as of the last day of each calendar month) of not less than 1.5 to 1.0.
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8.10. The Company shall at all times maintain Working Capital of not less than (i) a negative $750,000 at any time after the date of the first funding hereunder and (ii) a negative $250,000 at any time after December 30, 1996.
8.11. The Company shall not grant, create or allow to exist any security interest, lien or other encumbrance on any of the collateral other than (i) the lien and security interest granted to Fidelity herein, (ii) the existing security interest of Phoenixcor on equipment of the Company, and (iii) purchase money security interests in equipment of the Company at to which the Company has given Fidelity written notice. The Company shall not execute any financing statement in favor of any Person other than Fidelity, except a continuation statement in favor of Phoenixcor or the holder of such a purchase money security interest. The Company shall not change its mailing address, chief executive office, principal place of business or place where such records are maintained, open any new place of business, close any existing place of business or change the location of any of the Collateral or transact business under any trade, fictitious or assumed name other than those set forth under the company's signature hereon without providing at least 30 days' prior written notice thereof to Fidelity.
8.12. The Company shall not accept any returns or grant any allowance or credit (other than those returns, allowances and credits accepted or granted in the ordinary course of the Company's business) to any Account Debtor without notice to and the prior written approval of Fidelity. The Company shall provide to Fidelity for each Account Debtor on Eligible Accounts a weekly report, in for
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and substance satisfactory to Fidelity, itemizing all such returns and allowances made during the previous week with respect to such Eligible Accounts.
8.13. The Company shall not incur, directly, or indirectly, any obligations for borrowed money or otherwise under any promissory note, bond, indenture or similar instrument, or in connection with the obligations of any Person (whether by guaranty, suretyship, purchase or repurchase agreement or agreement to make investments or otherwise), other than in favor of Fidelity or Kris Shah, provided that, pursuant to the Subordination Agreement, any obligations for borrowed money owed by the Company to Kris Shah shall be expressly subordinated to the Obligations, in the normal and ordinary course of the Company's business.
8.14. The Company shall not use any of the funds paid to the Company hereunder directly or indirectly for personal, family, household or agricultural purposes.
8.15. The Company shall not directly or indirectly become liable in connection with the obligations of any Person, whether by guarantee, surety, endorsement (other than endorsement of negotiable instruments for collection in the ordinary course of business), agreement to purchase or repurchase, agreement to make investments, agreement to provide funds or maintain working capital, or any agreement to assure a creditor against loss, other than in favor of Fidelity.
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8.16. The Company shall not discontinue, or make any material change in, its business as currently established, or enter any new or different line of business not directly related to the Company's existing line of business.
8.17. The Company shall not make any loans or advances to or for the benefit of any officer, director or shareholder of the Company except advances for routine expense allowances in the ordinary course of business. The Company shall not make any loans or advances to or for the benefit of any Affiliate of the Company. The Company shall not make any payment on any obligation owing to any officer, director, shareholder or Affiliate of the Company other than payments to Kris Shah that are permitted under the Subordination Agreement.
8.18. The Company shall not purchase or otherwise acquire assets from any Person outside the ordinary course of business of the Company.
8.19. The Company shall not invest in or otherwise purchase or acquire the securities of any Person.
8.20. The Company shall not sell or dispose of any of its assets other than the sale of Inventory in the ordinary course of business, and the Company shall not dissolve or liquidate or become a party to any merger or consolidation with any Person.
Section 9. Personal Property Collateral. In order to secure the payment of all Obligations, the Company hereby grants to Fidelity a security interest in and lien upon all of the Company's right, title and interest in and to (a) all Accounts, contract rights and general intangibles, receivables and claims whether now or hereafter arising, all guaranties and security therefor and all of the Company's right title and interest in the goods purchased and represented thereby including all of the Company's rights in and to returned goods and rights of stoppage in transit, replevin and reclamation as unpaid vendor; (b) all Inventory and all accessions thereto and products thereof and documents therefor; (c) all equipment and machinery, wherever located and whether now or hereafter existing, and all parts thereof, accessions thereto, and replacements therefor and all documents and general intangibles covering or relating thereto; (d) except to the extent prohibited by law or contract, all books and records pertaining to the foregoing, including but not limited to computer programs, data, certificates, records, circulation lists, subscriber lists, advertiser lists, supplier lists, customer lists, customer and supplier contracts, sales orders, and purchasing records; and (e) all proceeds of the foregoing (collectively, the "Personal Property Collateral"). The Company agrees to comply with all appropriate laws in order and to take all actions necessary or desirable in Fidelity's judgment to perfect Fidelity's security interest in and to the Personal Property Collateral, to execute any financing statement or additional documents as Fidelity may request and to deliver to Fidelity a list of all locations of its Inventory, equipment and machinery and landlord and or mortgagee lien waivers with respect to each site where Inventory, equipment or machinery is located and which is either leased by the Company or has been mortgaged by the Company, upon request by Fidelity.
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Section 10. Collection. Each invoice representing an Account shall state on its face that amounts payable thereunder are payable only at the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Remittance Address. Fidelity shall have the right at any time, either before or after the occurrence of an Event of Default and without notice to the Company, to notify any or all Account Debtors on the Personal Property Collateral of the assignment of the Personal Property Collateral to Fidelity and to direct such Account Debtors to make payment of all amounts due or to become due to the Company directly to Fidelity, and to the extent permitted by law, to enforce collection of any Personal Property Collateral and to adjust, settle or compromise the amount or payment thereof. So long as no Event of Default or event that, with the passage of time, the giving of notice or both, would become an Event of Default has occurred and is continuing, all collections of Personal Property Collateral or any other evidences of payment received by Fidelity shall be applied by Fidelity to the payment of the Obligations of the Company to Fidelity whether or not then due and any remaining funds shall be delivered to the Company. Upon the occurrence of an Event of Default or an event that, with the passage of time, the giving of notice or both, would become an Event of Default, any such remaining funds may be held by Fidelity as cash collateral ("Cash Collateral") until all Obligations have been paid in full and Fidelity has no further obligation to advance funds to the Company. All amounts and proceeds (including instruments and writings) received by the Company in respect of the Personal Property Collateral shall be received in trust for the benefit of Fidelity hereunder, shall be segregated from other funds of the Company and shall be promptly paid over to Fidelity in the same form as received (with any necessary endorsement) to be applied in the same manner as payments received directly by Fidelity.
Section 11. Power of Attorney. The Company grants to Fidelity an irrevocable power of attorney coupled with an interest authorizing and permitting Fidelity, at its option, with or without notice to the Company, to do any or all of the following: (a) endorse the name of the Company on any checks or other evidences of payment whatsoever that may come into the possession of Fidelity regarding Personal Property Collateral, including checks received by Fidelity pursuant to Section 10 hereof; (b) receive, open and forward any mail addressed to the Company and put Fidelity's address on any statements mailed to Account Debtors; (c) upon the occurrence of an Event of Default, pay, settle, compromise, prosecute or defend any action, claim, conditional waiver and release, or proceeding relating to Personal Property Collateral; (d) upon the occurrence of an Event of Default, notify, in the name of the Company, the U.S. Post Office to change the address for delivery of mail addressed to the Company to such address as Fidelity may designate (provided that Fidelity shall turn over to the Company all such mail not relating to Personal Property Collateral); (e) upon the occurrence of an Event of Default, verify, sign, acknowledge, record, file for recording, serve as required by law, any claim of mechanic's lien, stop notice or bonded stop notice in the sole and absolute discretion of Fidelity relating to any Personal Property Collateral; (f) upon the occurrence of an Event of Default, insert all recording or service information in any mechanic's lien or assignment of rights under stop notice/bonded stop notice which the Company has signed in connection with this Agreement, recorded or served to enforce payment of the Personal Property Collateral; (g) execute and file on behalf of the Company any financing statement, amendment thereto or continuation thereof (i) deemed necessary or appropriate by Fidelity to protect Fidelity's interest in and to the Personal
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Property Collateral or (ii) required or permitted under any provision of this Agreement; and (h) upon the occurrence of an Event of Default, do all other things necessary and proper in order to carry out this Agreement. The authority granted to Fidelity herein is irrevocable until this Agreement is terminated and all amounts due to Fidelity hereunder have been paid in full.
Section 12. Default. An event of default ("Event of Default") shall be deemed to have occurred hereunder, Fidelity shall have no further obligation to make any further Revolver Advances and may immediately exercise its rights and remedies with respect to the Collateral under this Agreement, the Uniform Commercial Code and applicable law, upon the happening of one or more of the following:
(a) The Company shall fail to pay as and when due any amount owed by the Company to Fidelity, whether hereunder or otherwise.
(b) The Company shall breach any covenant or agreement made herein or in any other Transaction Document or any warranty or representation made herein or in any other Transaction Document shall be untrue when made, and in either case, the same shall not be cured to Fidelity's satisfaction within ten days after such covenant or agreement is breached or such representation or warranty is made; provided that if any such breach is impossible to remedy within ten days, so long as the Company has undertaken (within the initial ten day cure period) the steps necessary to remedy such breach and the Company diligently continues to take all steps necessary to cure such failure, the ten day cure period will be extended, but in no event shall the cure period exceed sixty days.
(c) Any report, certificate, schedule, financial statement, profit and loss statement or other statement furnished by the Company, or by any other
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document person on behalf of the Company, to Fidelity is not true and correct in any material respect.
(d) There shall be commenced by the Company or any guarantor of the Obligations any voluntary case under the federal Bankruptcy Code, or the Company or any guarantor of the Obligations shall make an assignment for the benefit of its creditors, or of a receiver or custodian shall be appointed for the Company or any guarantor of the Obligations for a substantial portion of its assets.
(e) There shall be commenced against the Company or any guarantor of the Obligations any involuntary case under the federal Bankruptcy Code, which remains undismissed for a period of sixty days.
(f) The Company shall become insolvent in that its debts are greater than the fair value of its assets, or the Company is generally not paying its debts as they become due.
(g) Any involuntary lien, garnishment, attachment or the like shall be issued against or shall attach to the Collateral and the same is not released within ten days.
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(h) An event or circumstance shall have occurred which has or may result in a material adverse change in the Company's financial condition, business or operations.
(i) The Company shall have a federal or state tax lien filed against any of its properties, or shall fail to pay any federal or state tax when due, or shall fail to file any federal or state tax form or report as and when due.
(j) Either (i) any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of $25,000 exists with respect to any ERISA Plan, or (ii) any Termination Event occurs with respect to any ERISA Plan and the then current value of such ERISA Plan's benefit liabilities exceeds the then current value of such ERISA Plan's assets available for the payment of such benefit liabilities by more than $25,000.
(k) The Company suffers the entry against it a final judgment for the payment of money in excess of $35,000.
(l) Fidelity believes that the prospect for payment or performance of the Obligations has become impaired.
(m) Any guarantor of the Obligations shall repudiate his, her or its obligations in respect of such guaranty.
(n) Kris Shah, his spouse, the blood relatives of Kris Shah and any trusts for the exclusive benefit of any blood relatives of Kris Shah, Kris Shah, his spouse or lineal descendants cease to own or control in the aggregate at least 51% of the outstanding capital stock of the Company.
Upon the occurrence of an Event of Default described in subsections (d) or (e) of this section, all of the Obligations owing by the Company to Fidelity under any of the Transaction Documents shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, or any other notice or declaration of any kind, all of which are hereby expressly waived by the Company. During the continuation of any other Event of Default, Fidelity, at any time and from to time to time, may declare any or
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all of the Obligations owing by the Company to Fidelity under any of the Transaction Documents immediately due and payable, all without notice, demand, presentment, notice of demand or of dishonor and nonpayment, or any notice or declaration of any kind, all of which are hereby expressly waived by the Company. After any such acceleration (whether automatic or due to declaration by Fidelity), any obligation of Fidelity to make any further Revolver Advances or loans of any kind under this Agreement or any other agreement with the Company shall terminate. All Revolver Advances hereunder are subject to approval by Fidelity in its sole discretion, and may be declined in whole or in part, without prior notice to the Company, whether or not an Event of Default may then be in existence.
Section 13. Remedies and Application of Proceeds.
13.1. In addition to, and with limitation of, the foregoing provisions
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of this Agreement, if an Event of Default shall have occurred and be continuing, Fidelity may from time to time in its discretion, without limitation and without notice except as expressly set forth herein: (A) exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, under the other Transaction Documents or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral); (b) require the Company to, and the Company hereby agrees that it will at its expense, assemble all or part of the Collateral as directed by Fidelity and make it available to Fidelity at a place to be designated by Fidelity that is reasonably convenient to both parties; (c) reduce its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial procedure; (d) dispose of, at its office, on the premises or the Company or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings; (e) buy the Collateral, or any part thereof, at any public sale, or at any private sale if the Collateral is of a type customarily sold in a recognized market or is of a type that is the subject to widely distributed standard price quotations; (f) apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and the Company hereby consents to any such appointment; and (g) at its discretion, retain the Collateral in satisfaction of the Obligations whenever the circumstances are such that Fidelity is entitled to do so under the UCC or otherwise. The Company agrees that, to the extent notice of sale shall be required by law, unless a longer period of notice is prescribed by law, at least five days' notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Fidelity shall not be obligated to make any sale of Collateral regardless of whether any notice of sale has been given. Fidelity may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.
13.2. If any Event of Default shall have occurred and be continuing, Fidelity may in its discretion apply any Cash Collateral, and any cash proceeds received by Fidelity in respect of any sale of, collection from, or other realization upon all or any part of the Collateral, to any or all of the following in such order as Fidelity may elect: (a) the repayment of all or any portion of the
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Obligations; (b) the repayment of reasonable costs and expenses, including reasonable attorneys' fees and legal expenses, incurred by Fidelity in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of Fidelity hereunder, or (iv) the failure of the Company to perform or observe any of the provisions hereof; (c) the payment or other satisfaction of any liens and other encumbrances upon any of the Collateral; (d) the reimbursement of Fidelity for the amount of any obligations of the Company paid or discharged by Fidelity, and of any expenses of Fidelity payable by the Company hereunder or under the other Transaction Documents; (e) by holding the same as Collateral; (f) the payment of any other amounts required by applicable law (including, without limitation, Part 5 of Article 9 of the UCC or any successor or similar applicable statutory provision); and (g) by delivery to the Company or to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.
Section 14. Miscellaneous.
14.1. In the event that the Company commits any act or omission that prevents or unreasonably interferes with (a) Fidelity's exercise of the rights and privileges arising under the power of attorney granted in Section 11 of this Agreement or (b) Fidelity's perfection of or levy upon the security interest granted in the Collateral, including any seizure of any Collateral, the Company acknowledges that such conduct will cause immediate, severe, incalculable and irreparable harm and injury, and agrees that such conduct shall constitute sufficient grounds to entitle Fidelity to an injunction, writ of possession, or other applicable relief in equity, and to make such application for such relief in any court of competent jurisdiction, without any prior notice to the Company.
14.2. All rights, remedies and powers granted to Fidelity in this Agreement, or in any other instrument or agreement given by the Company to Fidelity or otherwise available to Fidelity in equity or at law, are cumulative and may be exercised singularly or concurrently with such other rights as Fidelity may have. These rights may be exercised from time to time as to all or any part of the Collateral as Fidelity in its discretion may determine. In the event that Fidelity elects to purchase the Eligible Accounts hereunder, such transaction shall constitute a purchase of Accounts under the UCC, and the Company shall be deemed to have sold, assigned, transferred, conveyed and delivered to Fidelity, as absolute owner, all of the rights, title and interest of the Company in and to all Eligible Accounts. No waiver by Fidelity of its rights and remedies shall be effective unless the waiver is in writing and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document signed by Fidelity. A waiver by Fidelity of a right or remedy under this Agreement or any other Transaction Document on one occasion shall not be deemed to be a waiver of such right or remedy on any subsequent occasion. A Revolver Advance by Fidelity during the-continuation of an Event of Default shall not obligate Fidelity to make any further Revolver Advances during the continuation of such Event of Default.
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14.3. Any notice or communication with respect to this Agreement or any other Transaction Document shall be given in writing, sent by (i) personal delivery, (ii) expedited delivery service with proof of delivery, (iii) United States mail, postage prepaid, registered or certified mail, or (iv) prepaid telegram, telex or telecopy, addressed to each party hereto at its address set forth below its signature hereon or to such other address or to the attention of such other Person as hereafter shall be designated in writing by the applicable party sent in accordance herewith. Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of telegram, telex or telecopy, upon receipt The Company hereby agrees that Fidelity may publicize the transaction contemplated by this Agreement in newspapers, trade and similar publications including, without limitation, the publication of a "tombstone".
14.4. The term of this Agreement shall be for one year from the date hereof (the original term, and any extension thereof made by Fidelity pursuant to this section, are herein called the "Term"); provided, however, that Fidelity may extend the term hereof for additional one-year periods, if Fidelity elects to do so in its sole discretion, by notifying the Company in writing at least 30 days before the end of the term then in effect; and provided further that Fidelity may terminate this Agreement at any time effective immediately upon the occurrence of an Event of Default. The Company acknowledges that it shall have no right to terminate this Agreement prior to the end of the Term, that termination of this Agreement at any time prior to the end of the Term would result in the loss by Fidelity of benefits under this Agreement and that the damages incurred by Fidelity as a result of such termination would be difficult and impractical to ascertain. Therefore, in the event this Agreement is terminated prior to the end of the Term for any reason or the Fixed Asset Loan is repaid in full (no termination fee shall be due solely as a result of the prepayment of the Real Estate Loan), the Company shall pay to Fidelity an early termination fee in an amount equal to (x) the average monthly accrued interest and fees earned by Fidelity hereunder prior to the date of termination multiplied by (y) the number of months remaining in the Term as of the date of termination, but in no event shall such early termination fee exceed the maximum amount permitted by applicable law. Any termination of this Agreement shall not affect Fidelity's security interest in the Collateral, and this Agreement shall continue to be effective, until all Obligations have been paid in full.
14.5. Fidelity agrees that, so long as no Event of Default has occurred and is continuing, upon receipt by Fidelity of payment in full of the outstanding principal balance of the Real Estate Loan, together with interest thereon, Fidelity shall at the expense of the Company execute and deliver such instruments and documents as the Company may reasonably request to release the Mortgage.
14.6. Each and every provision, condition, covenant and representation contained in this Agreement is, and shall be construed, to be a separate and independent covenant and agreement. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of the Agreement shall not be affected thereby.
25
14 7. The Company hereby indemnifies and agrees to hold harmless and defend all Indemnified Persons from and against any and all Indemnified Claims. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWNED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN-PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY INDEMNIFIED PERSON.
If any Indemnified Claim is asserted against any Indemnified Person, such Indemnified Person shall promptly notify the Company (but the failure to so promptly notify the Company shall not affect the Company's obligations under this section unless such failure materially prejudices the Company's right to participate in the contest of such Indemnified Claim). The Company shall have the obligation to assume the defense thereof, including the employment of Advisors to take the lead role in asserting claims and defenses common to both the Company and the various Indemnified Persons ("Lead Advisors"), provided that all Persons chosen to be Lead Advisors must be consented to by Fidelity, which consent will not be unreasonably withheld. If Lead Advisors are employed and consented to in accordance with the preceding sentence, each Indemnified Person
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document shall nonetheless have the right to employ its own Advisors and to determine its own defense of such action in any case, but the fees and expenses of such Advisors shall be at the expense of such Indemnified Person except to the extent that: (i) the employment of such Advisors shall have been authorized in writing by the Company, or (ii) such Indemnified Person's counsel shall have reasonably concluded that there appear to be claims or defenses available to it which are not shared by the Company and such Advisors are engaged in reasonable efforts to assert such claims and defense, in either of which events the reasonable fees and expenses of such Indemnified Person shall be born by the Company. No Indemnified Person shall settle or compromise any Indemnified Claim for which the Company may be liable for payment hereunder nor shall the Company settle or compromise any Indemnified Claim for which any Indemnified Person may be liable for payments in addition to those actually and concurrently made by the Company, without the consent of the other, which consent shall not be unreasonably withheld. As used herein the term "Advisors" means attorneys, accountants, experts, and other advisors.
Except as specifically provided in this section, the Company waives all notices from any Indemnified Person. The provisions of this Section 14.7 shall survive the termination of this Agreement.
14.8. All grants, covenants and agreements contained in this Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not delegate or assign any of its duties or obligations under this agreement without the prior written consent of Fidelity. FIDELITY RESERVES THE RIGHT TO ASSIGN ITS RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT IN WHOLE OR IN PART TO ANY PERSON OR ENTITY. Without limiting the generality of the foregoing, Fidelity may from time to time grant participations in all or any part
26
of the Obligations to any Person on such terms and conditions as may be determined by Fidelity in its sole and absolute discretion, provided that the grant of such participation shall not relieve Fidelity of its obligations hereunder nor create any additional obligation of the Company.
14.9. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE RULES THEREFORE RELATING TO CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN CALIFORNIA AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN FIDELITY AND THE COMPANY BY ANY MEANS ALLOWED UNDER STATE AND FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN FIDELITY AND THE COMPANY SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA HAVING JURISDICTION. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER.
14.10. EACH OF THE COMPANY AND FIDELITY HEREBY (A) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES TEAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK-TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH.
14.11. THIS AGREEMENT, THE SECURITY DOCUMENTS DESCRIBED HEREBY AND THE ACKNOWLEDGMENT DELIVERED IN CONNECTION
27
HEREWITH SET FORTH THE ENTIRE UNDERSTANDING AND AGREEMENT OF THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. NO MODIFICATION OR AMENDMENT OF OR SUPPLEMENT TO THIS AGREEMENT OR TO SUCH ACKNOWLEDGMENT SELL BE VALID OR EFFECTIVE UNLESS THE SAME IS IN WRITING AND SIGNED BY THE PARTY AGAINST WHOM IT IS SOUGHT TO BE ENFORCED.
14.12. Fidelity hereby acknowledges that the Company is considering incorporating the Company's divisions, INTERCON and INFOSEC, into separate
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document corporations and filing registration statements with the Securities and Exchange Commission or other similar governmental authority. In the event the Company proceeds with its plans to so incorporate and publicly register its divisions, the Company and Fidelity shall enter into discussions concerning any waivers or consents that may be required to effect such incorporation and public registration.
28
The undersigned have entered into this Agreement as of the date first written above.
FIDELITY FUNDING OF CALIFORNIA, INC. LITRONIC INDUSTRIES, INC. a California corporation a California corporation
By: [AUTHORIZED SIGNATORY] By: /S/ KRIS SHAH ------
Name: James E. [illegible] Kris Shah Title: Senior Vice President President
Mailing Address:
275 East Baker Street, Suite A 2950 Redhill Avenue Costa Mesa, California 92626 Costa Mesa, California 92626
Street Address:
Same Same
Trade, Fictitious and Assumed Names Used by the Company
______
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EXHIBIT A BORROWING BASE CERTIFICATE LITRONIC INDUSTRIES, INC.
DATE: JUNE 27, 1996 REPORT #: 1
EXHIBIT A BORROWING BASE CERTIFICATE LITRONIC INDUSTRIES, INC. DATE: JUNE 27, 1996 REPORT#: 1
THE UNDERSIGNED HEREBY CERTIFIES TO FIDELITY FUNDING OF CALIFORNIA, INC. ("FIDELITY") THAT:
1 HE IS THE DULY ELECTED AND QUALIFIED CHIEF FINANCIAL OFFICER OF LITRONIC, INDUSTRIES, INC. (THE "COMPANY"), IS FAMILIAR WITH THE FACTS HEREIN CERTIFIED AND IS DULY AUTHORIZED TO CERTIFY SUCH FACTS AND MAE AND DELIVER THIS BORROWING BASE CERTIFICATE FOR AN ON BEHALF OF THE COMPANY, PURSUANT TO THAT CERTAIN LOAN AND SECURITY AGREEMENT, (THE "AGREEMENT"), DATED AS OF JUNE ____, 1996 BETWEEN THE COMPANY AND FIDELITY.
2 ALL REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY IN THE AGREEMENT OR ANY OTHER INSTRUMENT DOCUMENT, CERTIFICATE OR OTHER AGREEMENT EXECUTED IN CONNECTION THEREWITH (COLLECTIVELY, THE "TRANSACTION DOCUMENTS") DELIVERED ON OR BEFORE THE DATE HEREOF ARE TRUE ON AND AS OF THE DATE HEREOF AS IF SUCH REPRESENTATIONS AND WARRANTIES HAD BEEN MADE AS OF THE DATE HEREOF.
3 NO EVENTS OF DEFAULT OR ANY EVENT, THAT WITH THE GIVING OF NOTICE, THE PASSAGE OF TIME OR BOTH, WOULD CONSTITUTE AN EVENT OF DEFAULT HAS OCCURRED AND IS EXISTING.
4 THE COMPANY HAS PERFORMED AND COMPLIED WITH ALL AGREEMENTS AND CONDITIONS REQUIRED IN THE TRANSACTION DOCUMENTS TO BE PERFORMED OR COMPLIED WITH BY IT ON OR PRIOR TO THE FUNDING OF THE ADVANCE REQUESTED HEREBY.
5 AFTER FIDELITY MAKES THE ADVANCE REQUESTED HEREBY, THE AGGREGATE AMOUNT OF ALL OUTSTANDING ADVANCES WILL NOT EXCEED THE LESSER OF (i) THE COMMITMENT AND (ii) THE BORROWING BASE.
6 ALL INFORMATION CONTAINED IN THIS BORROWING BASE CERTIFICATE IS TRUE, CORRECT AND COMPLETE.
TERMS USED AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANING ASSIGNED TO THEM IN THE AGREEMENT, IF SO DEFINED UNDER SECTION 1. "DEFINITIONS AND CONSTRUCTION" OF THE AGREEMENT.
IN WITNESS WHEREOF, THIS INSTRUMENT IS EXECUTED BY THE UNDERSIGNED AS OF JUNE 27, 1996:
LITRONIC INDUSTRIES, INC.
------THOMAS W. SEYKORA
CHIEF FINANCIAL OFFICER 33
EXHIBIT B
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
ACORD CERTIFICATE OF LIABILITY INSURANCE DATE: 6/25/96 ------PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER WIGMORE INSURANCE AGENCY, INC. OF INFORMATION ONLY AND CONFERS NO 2970 HARBOR BLVD. #215 RIGHTS UPON THE CERTIFICATE HOLDER, THIS COSTA MESA, CA 92626 CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
------
COMPANIES AFFORDING COVERAGE ------
COMPANY A ZURICH AMERICAN ------INSURED COMPANY DRIL-TRON, INC., DBA: LITRONICS B SCOTTSDALE 2950 REDHILL AVE. ------COSTA MESA, CA 92627 COMPANY C PACIFIC NATIONAL ------COMPANY D ------COVERAGES THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.11
AWARD/CONTRACT 1. This contract is rated order under DPAS (15 CFR 350) Rating DO: S10 Page 1 of Pages 34 2. Contract (Proc. Inst. Indent.) NO. MDA904-97-C-0424 3. Effective date 27 June '97 4. Requisition/Purchase Request/Project No. 16-97-2093-0000 5. Issued By Maryland Procurement Office 9800 Savage Road, FANX III Fort George G. Meade, MD 20755-6000 Attn: Margaret L. Miller, (N141) Code H98230 6. Administered By (If other than Item 5) CODE 7. Name and Address of Contractor (No., street, county, State and ZIP Code) Litronic Industries Attn: James Prohaska 43088 Winter Grove Drive Ashburn, VA 22011 (703-729-1700) and U.S. Small Business Administration 409 3rd Street, S.W. Washington, DC 20416 Code Facility Code 8. Delivery FOB Origin X Other (See below) 9. Discount for Prompt Payment NET 30 10. Submit Invoices (4 copies unless otherwise specified) to the address shown in: Item See Section G.4 11. Ship to/Mark for See Section F.4 12. Payment will be made by contracts -- Accounts Payable Finance and Accounting Office, P.O. Box 400, Ft. Meade, MD 20755-6000 (410) 684-7538 Code H98230 13. Authority for using other than full and open competition: X 10 U.S.C. 2304(c) (6) and 10 U.S.C. 637(a) ___ 41 U.S.C. 253(c)( ) 14. Accounting and Appropriation Data: See Section G.1 15A. Item No.: 15B. Supplies/Services 15C. Quality 15D. Unit 15E. Unit Price 15F. Amount This is a firm fixed price level of effort award fee type contract This contract is subject to the Prompt Payment Act, Public Law 97-177, as amended. 15G. Total amount of contract $369,736.00 16. Table of Contents (x) SEC. DESCRIPTION PAGE(S)
Part I - The Schedule X A Solicitation/Contract Form 1-2 X B Supplies or Services and Prices/Costs 3 X C Description/Specs./Work Statement 4 X D Packaging and Marking 4 X E Inspection and Acceptance 5 X F Delivers or Performance 6-7 X G Contract Administration Data 8-11 X H Special Contract Requirements 11-21
Part II - Contract Clauses X I Contract Clauses 22-33 Part III - List of Documents, Exhibits and Other Attachments X J List of Attachments 34 Part IV - Representations and Instructions K Representations, Certifications L Instrs., Cond., and Notices to Offerors M Evaluation Factors for Award
Contracting Officer will complete item 17 or 18 as applicable
17. X Contractor's Negotiated Agreement (Contractor is required to sign this document and return 3 copies to issuing office.) Contractor agrees to furnish and deliver all items or perform all the service set forth or otherwise identified above and on any continuation sheets for the consideration stated
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein. (Attachments are listed herein)
18. ____ Award (Contractor is not required to sign this document.) You offer on Solicitation Number ______including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as to the items listed above or on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government solicitation and your offer, and (b) this award/contract. No further contractual document is necessary.
19A. Name and title of signer (Type or print) See Page Two 19B. Contractor/Offeror By (Signature of person authorized to sign) 19C Date signed 20A. Name and Title of Contracting Officer (Type or Print) See Page Two 20B. United States of America By (Signature of Contracting Officer) 20C. Date Signed NSN 7540-01-152-8069 Standard Form 26 (Rev 4) Prescribed by GSA
MDA904-97-C-0424 3 of 34 SECTION B - SUPPLIES OR SERVICES AND PRICES COSTS
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document MDA904-97-C-0424 4 of 34
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at actual costs; meals and incidental expenses shall be reimbursed at the applicable flat rate. The total of lodging, meals, and incidental expenses shall not exceed the established rate for each location set forth in the "Federal Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and the Standardized Regulation (Government Civilians Foreign Areas), Section 925," as applicable. These costs shall be directly chargeable to this contract in accordance with the contractor's established method of distributing such costs. First class travel shall not be reimbursed. Contractor shall be reimbursed for coach rates only. Travel is non fee bearing. Invoices which request reimbursement of travel expenses must be accompanied by airline ticket subs, hotel/motel receipts, and rental car receipts.
SECTION C - DESCRIPTION/SPECIFICATION/WORK STATEMENTS
C.1 Statement of Work entitled, "Multi Level Information System Security Initiative, Crypto Card System Analysis and Library and Driver Architecture and Development," dated 10 January 1997.
C.2 Contract Data Requirements List, DD Form 1423, dated 13 February 1997.
C.3 Award Fee Plan (Revision 2), dated 10 June 1997.
SECTION D - PACKAGING AND MARKING
D.l 352.247-9002 PACKAGING AND PACKING (OCT 1993)
Packaging and packing shall be in accordance with the contractor's best commercial practice for domestic shipment to insure safe arrival at destination.
(End of clause)
D.2 352.247-9003 MARKING OF DOCUMENTS (SEP 1994)
(a) All Contractor-generated technical reports shall bear the statement "Not Releasable to the Defense Technical Information Center per DoD Directive 3200.12."
(b) In addition to the above marking all unclassified technical reports photographs, drawings, schematics, design circuits and description of equipment designed and/or produced under the contract shill be marked with the legend "DISTRIBUTION LIMITED TO U.S. GOVERNMENT AGENCIES ONLY, THIS DOCUMENT CONTAINS NSA INFORMATION (Applicable Date). REQUEST FOR THIS DOCUMENT MUST BE REFERRED TO THE DIRECTOR, NSA." Where SF Form 298 is required to accompany a document, the legend shall be entered in Block 12a thereof.
MDA904-97-C-0424 5 of 34
(c) The Contractor shall be responsible for inserting the appropriate application date in the aforementioned legend. This date shall be the date upon which the document was completed.
SECTION E - INSPECTION AND ACCEPTANCE
E.l REFERENCED CLAUSES - The following contract clauses pertinent to this section are hereby incorporated by reference:
FAR CLAUSES CLAUSE NO. TITLE 52.246-4 Inspection of Services - Fixed Price (AUG 1996) 52.246-16 Responsibility for Supplies (APR 1984)
E.2 352.246-9003 NOTICE: MATERIAL AND WORKMANSHIP (OCT 1993)
All material incorporated in the work shall be new and the work shall be performed in a skillful and workmanlike efficient manner. Both materials and workmanship shall be subject to the inspection of the Contracting Officer or his duly authorized representative who may require the Contractor to correct defective workmanship or materials without cost to the Government.
(End of clause)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document E.3 INSPECTION AND ACCEPTANCE
a. Preliminary inspection of the work called for herein shall be conducted at the contractor's facilities or the site of the sponsoring Agency by the Contracting Officer or his duly designated Contracting Officer's Representative(s). Such inspections may be conducted from time to time and at any time upon prior notification by the Government that such an inspection is to occur.
b. Final inspection and acceptance of the work and all deliverables will be conducted at destination by the Contracting Officer or duly authorized Agency personnel. (End of clause)
MDA904-97-C-0424 6 of 34
SECTION F - DELIVERIES OR PERFORMANCE
F.1 REFERENCED CLAUSES - The following contract clauses pertinent to this section arc hereby incorporated by reference:
FAR CLAUSES CLAUSE NO. TITLE 52.212-13 Stop Work Order (AUG 1989) 52.247-34 F.O.B. Destination (NOV 1991) 52.247-54 Diversion of Shipment Under F.O.B. Destination Contracts (MAR 1989)
F.2 352.247-9000 NOTICE: F.O.B. DESTINATION (OCT 1993)
Supplies shall be shipped F.O.B. destination with delivery service required to the consignee's receiving dock. (End of clause)
F.3 352.215-9011 PLACE OF PERFORMANCE (OCT 93)
Unless the written approval of the Contracting Officer is obtained in advance, the work herein shall not be performed at any facility other than the contractor's plants located at Costa Mesa, CA, and Ashburn, VA, or the site of the sponsoring Agency.
(End of Clause)
F.4 352.247-9006 SHIPPING INSTRUCTIONS - DORSEY ROAD (SEP 1996)
Supplies shall be shipped to the following: Dorsey Road Warehouse 1472 Dorsey Rd, Doors 1, 2 or 3 Hanover, MD 21076 Attn: S71 Receiving Officer REF: MDA904-97-C-0424
NOTE: Schedule shipments to arrive at destination from 7:00 AM to 2:30 PM Monday through Friday, excluding Federal holidays. Call 410-691-2735 no less than 24 hours in advance of delivery if any pallet will exceed 60" in height or 2,000 lbs in weight so that the receiving personnel will be prepared to accept your shipment.
(End of clause)
MDA904-97-C-0424 7 of 34
F.5 352.247-9009 SHIPPING INSTRUCTIONS - TECHNICAL DATA (MAR 1996)
Technical Data shall be shipped F.O.B. Destination to: Director, National Security Agency Chief, Central Security Service Attn: (See Block 14 of DD 1423) 9800 Savage Road Fort George G. Meade, MD 20755-6000 REF: MDA904-97-C-0424
NOTE: Schedule shipments to arrive at destination from 7:00 AM to 12:00 Noon Monday through Friday, excluding Federal holidays. Shipments will not be accepted on Saturday or Sunday.
F.6 352.211-9004 PERIOD OF PERFORMANCE (OCT 1990) - ALTERNATE III (OCT 1990)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document This contract shall extend from the date of contract award to 30 September 1997, unless performance is sooner terminated under the contract. However. the Government reserves the right to exercise the option to renew the contract for up to TWO (2) years, as set forth elsewhere in this contract.
MDA904-97-C-0424 8 of 34
SECTION G - CONTRACT ADMINISTRATION DATA
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993)
Funds in the amount of $ 15,635.50 have been obligated under this contract towards future award fee determinations but are not available for the Contractor to bill against or incur costs against. Obligated award fee funds identified above will be released to the Contractor via subsequent modifications after the Government has rendered an award fee determination in accordance with the Award Fee Plan currently in force under this contract. Upon receipt of the aforementioned modifications, the Contractor is authorized to bill for the earned fee.
G.3 352.242-9002 CONTRACT ADMINISTRATION DATA (OCT 1993)
The Procuring Contracting Officer will retain all administration functions under this contract. (End of clause)
G.4 352.216-9003 INVOICING AND PAYMENT (OCT 1993)
Invoices shall be submitted to: CONTRACTS - ACCOUNTS PAYABLE FINANCE AND ACCOUNTING OFFICE PO BOX 400 (MDA904-97-C-0424) FT MEADE MD 20755-6000 Through: William Nace, X22, FANX III Contracting Officer's Representative MDA904-97-C-0424 9800 Savage Road Fort George G. Meade, MD 20755-6000
MDA904-97-C-0424 9 of 34
Copy to: MARYLAND PROCUREMENT OFFICE ATTN: N141 (MDA904-97-C-0424) 9800 SAVAGE RD FT MEADE, MD 20755-6720
NOTE: Invoices are subject to verification by the Contracting Officer's Representative(s) (CORs) that the actual expenses for the billing period have been incurred.
G.5 INVOICING AND PAYMENT
Invoices shall be submitted monthly by the contractor and shall include at a minimum:
a. Period of Performance covered by the invoice.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document b. Number of Labor Hours, by category, expended on the contract and covered by the invoice.
c. The contractor shall be paid by multiplying the hourly rate set forth in Section B by the number of direct labor hours performed. Final payment shall be subject to verification by the Government as to the actual amount of effort applied by the contractor in the performance therein.
NOTE 1: Contractor requests for Travel reimbursement shall be accompanied by airline, hotel and rental car receipts.
NOTE 2: Contractor requests for Other Direct Cost Reimbursements shall be accompanied by vendor receipts/invoices.
G.6 352.242-9001 CONTRACTING OFFICER'S REPRESENTATIVE (OCT 1993)
(a) The Contracting Officer may appoint one or more Government employees as Contracting Officer's Representatives (COR) for technical purposes applicable to this contract. "Technical" is restricted to scientific, engineering, or field- of-discipline matters directly applicable to the work performed by the Contractor under the requirements of this contract.
(b) The appointment(s) will be in writing, signed by the Contracting Officer, and will set forth the authority granted to and the limitations on the COR. Two copies of the letter of appointment will be provided to the Contractor who shall acknowledge receipt of the appointment by immediately signing and returning one copy of the letter. Such signing shall represent the Contractor's acknowledgement of the limited authority of the COR.
(c) When, in the opinion of the contractor, the COR or anyone else requests effort outside of the existing scope of the contract, the contractor shall promptly notify the Contracting Officer in writing. No action shall be taken by the contractor under such direction until the Contracting Officer has issued a contractual change or otherwise resolved the issue.
(d) Appointments may be changed or revoked by the Contracting Officer. The Contracting Officer will notify the Contractor, in writing of any such changes or revocations. (End of clause)
MDA904-97-C-0424 10 of 34
G.7 352.229-9001 MD TAX EXEMPTION NUMBER (APR 1989)
Certain transactions which occur pursuant to this contract, for examples, the purchase of materials or supplies, may be exempt from the imposition of state or local taxes. It is the contractor's responsibility to determine whether any transactions under the contract are exempt under the particular tax statute and to take advantage of any applicable exemptions. In addition, it may be useful for the contractor to inform the taxing authorities that the Maryland Procurement Office (MPO) is a federal government agency. In Maryland, it may be useful to inform Maryland taxing authorities that the MPO has been assigned Maryland State Tax Exemption Certificate Number 3000500 4.
(End of clause)
G.8 352.232-9025 NOTICE OF PROMPT PAYMENT ACT APPLICABILITY (OCT 1993)
This contract is subject to the Prompt Payment Act, Public Law 97-177, as amended. (End of clause)
G.9 352.229-9000 NOTICE OF TAXATION (SEP 94)
The Contractor shall provide the Contracting Officer with written notice of any proposed tax assessments, exemptions, exclusions or refunds which could increase or decrease costs or liabilities to the contractor and/or the Government. The notice shall be submitted in sufficient time to provide the Government a meaningful opportunity to assert its immunity, participate in negotiations or litigation with the taxing authority concerning the applicability of the tax, and/or adjust the parties' liability for costs according to the increase or decrease in tax.
(End of Clause)
G.10 352.229-9001 CONTRACTOR LIABILITY FOR STATE AND LOCAL TAXES (SEP 1994)
Generally, the contractor is liable for payment of state or local taxes on this contract to the same extent that it would be liable for such taxes on a contract with a non-governmental entity. Although it may be useful for the contractor to inform the taxing authorities that the Maryland Procurement Office (MPO) is a federal government agency, this fact alone does not in and of itself
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document create a tax exemption for the contractor. While some transactions undertaken by the contractor pursuant to this contract may be exempt from a state or local tax, it is the contractor's responsibility to identify such exemption under the applicable statute, and to resolve the applicability of such with state or local taxing authorities.
(End of Clause)
G.ll 352.232-9012 SMALL DISADVANTAGED BUSINESS CONCERN PAYMENTS (JUN 1994)
In accordance with DFARS 232.905(2), this award is made to a small disadvantaged business concern and is subject to payment as quickly as possible after receipt of a proper invoice by our Finance and Accounting Office.
MDA904-97-C-0424 11 of 34
G.12 352.932-9020 ALLOCATION OF CONTACT COSTS (OCT 1993)
lt is anticipated that this contract will be supported by two or more fund citations. Therefore, all invoices submitted for payment shall allocate costs based on the Accounting Classification References (ACR) tasks defined in Section B. An invoice not properly allocated shall be considered an improper invoice under the Prompt Payment Act.
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.1 352.204-900l DISCLOSURE OF INFORMATION - CONTRACT (SEP 1996)
(a) DFARS 252.204-7000 and this clause shall govern any disclosure of information regarding this contract. In using information authorized by this clause, the contractor (i) shall not disclose any information concerning the sponsorship of this contract, or (ii) the nature of the Government's interest in and application of the subject matter of this contract unless this type of information is expressly allowed to be disclosed by paragraph (b) and/or (c) below, or by written approval of the cognizant Contracting Officer.
(b) The information listed below may be disclosed in proposals to United States Government Agencies in response to requests for past performance assessments: When this information is completed at time of contract award, the document shall be marked "FOR OFFICIAL USE ONLY." If any of the information that follows changes in your disclosure, the Contracting Officer must be notified in writing of the change.
CONTRACT NUMBER: (complete at award) ______CONTRACT TYPE: (complete at award) ______AWARD DATE: (complete at award) ______GOVERNMENT CONTRACTING ACTIVITY: MARYLAND PROCUREMENT OFFICE 9800 SAVAGE ROAD FORT GEORGE G. MEADE, MD 20755-6000 ORIGINAL CONTRACT VALUE: (complete at award) ______CURRENT OR COMPLETED CONTRACT VALUE: (contractor may update)
______PERIOD OF PERFORMANCE: from: (complete at award) ______to: (contractor may update) ______COMPETITIVE/NONCOMPETITIVE/FOLLOW-ON (circle, underline or highlight appropriate description) PROGRAM TITLE: (complete at award) ______CONTACT EFFORT DESCRIPTION: (unclassified - as provided in solicitation package and completed as part of the award document) PLACE OF PERFORMANCE: (complete at award) ______POINTS OF CONTACT/PHONE NUMBER: Contracting Officer: (complete at award) (contractor may update) ______Program Manager: (complete at award) (contractor may update) ______
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(c) For additional disclosures which require specific prior approval by the Contracting Officer, once authorization to use any specific information has been approved by the Contracting Officer, the contractor is authorized to reuse such specific information without obtaining additional authorizations from the Contracting Officer. The contractor shall maintain a log of the additional uses and submit a copy of the log to the Contracting Officer when each additional
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document disclosure is made.
(End of clause)
H.2 352.904-90l0 NOTICE: CONTRACT ADMINISTRATION AND CLOSEOUT GUIDANCE (AUG 1996)
The following guidance is provided for your use in administering and closing out the contract. When the contract is complete, the contractor shall initiate final accounting and disposition. This shall be done in accordance with the following instructions. If a portion of the instructions are not applicable to this contract, then disregard that portion.
(a) Government Furnished Property/Documents.
(1) The cognizant property administration office (Defense Contract Management Command (DCMC), Office of Naval Research (ONR), and/or L14) is designated to administer the maintenance by the contractor of official Government Property Records for all Government property/documents. See Section G - Contract Administration Data for the cognizant office for this contract.
(2) The contractor shall sign (1) copy of the shipping or inspection document acknowledging receipt of property/documents and forward same to the designated property administrator.
(3) At the end of the contract, the contractor shall submit the Government Furnished Property/Documents Inventory Schedule, requesting disposition, to the cognizant office. The cognizant property administration office shall then obtain the disposition instructions from the contracting Officer's Representative (COR), and they will forward them to the contractor. The contractor shall provide the cognizant office with a declaration that all Government furnished property/documents have been accounted for or expended (disposition is complete) in the performance of the contract. The cognizant property administration office will provide the Maryland Procurement Office (MPO) and the COR with the appropriate releases.
(b) Contractor Acquired Property. At the end of the contract, the contractor shall submit the Contractor Acquired Property list, requesting disposition, to the cognizant property administration office. This office will then obtain the disposition instructions from the COR, and then will forward them to the contractor. The contractor shall provide the cognizant office with a declaration that Contractor Acquired Property has been dispositioned as requested. The cognizant property ad ministration office will provide the MPO and the COR with the appropriate releases.
(c) Plant Clearance. The cognizant property administration office is automatically delegated plant clearance procedures.
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(d) Classified Material/Documents (DD254 on the contract). The disposition/retention action of classified holding should be initiated pursuant to paragraphs 5.1 and 5.m of the Industrial Security Manual. The inventory, shall be submitted to the Director, NSA/CSS. ATTN: _____ (the applicable COR with office designator), 9800 Savage Road, Ft. George G. Meade. Maryland 20755- 6000. After compliance with the COR's disposition instructions, the contractor shall submit evidence of compliance, certified by the CSSO, to the MPO (ATTN: N1______(Contracting Officer's name), Maryland Procurement Office, 9800 Savage Road, Fort George G. Meade, MD 20755-6000), with a courtesy copy to S41 and the COR.
(e) Report of Inventions and Subcontracts (Form DD882). Pursuant to the Patent Rights Clause of this contract, the contractor shall submit the DD Form 882 to the Director, NSA/CSS, ATTN: ______(the applicable COR with office designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000, with a courtesy copy to the MPO (ATTN: N141 (Contracting Officer's name), Maryland Procurement Office, 9800 Savage Road, Fort George G. Meade, MD 20755-6000).
(f) Final Payment.
(1) For contracts requiring final DCAA audit, the contractor shall submit the final voucher with release and assignment documentation to the cognizant Defense Contract Audit Agency (DCAA) office for processing in accordance with FAR 4.804 (within 180 days).
(2) For all contracts not requiring final DCAA audit, the contractor shall submit the final invoice, DD250, to the COR for processing.
(g) Contract Data Requirements List (CDRL) - DD Form 1423. If not previously provided to the COR, the contractor shall provide the COR with status
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of the documentation for final resolution. This shall be submitted to the Director, NSA/CSS, ATTN :_____ (the applicable COR with the office designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-600, with a courtesy copy to the MPO (ATTN: Nl___(Contracting Officer's name), Maryland Procurement Office, 9800 Savage Road, Fort George G. Meade, MD 20755-6000).
(h) Quick Closeout.
(1) The contractor shall review the contract for applicability of the Quick Close Out Procedures, in accordance with the FAR 42.708, and determine if this method applies. If applicable, the contractor may request, in writing, Quick Close Out authorization from the CO.
(2) The MPO will authorize Quick Closeout Procedures, if applicable. The Contractor shall then submit a copy of the letter, the final voucher, etc., directly to the cognizant DCAA office (see Section G).
(End of notice)
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H.3 352.215-9000 NOTICE: INCORPORATION OF SECTION K BY REFERENCE (OCT 1993)
In accordance with FAR 15.406-1(b), Part IV of the Uniform Contract Format shall not be physically included in the contract, but Section K, Representations, Certifications, and Other Statements of Offerors (as completed by the Contractor) shall be deemed incorporated by reference in the contract.
(End of clause)
H.4 352.244-9001 NOTICE: SUBCONTRACTING WITH CANADIAN CONTRACTORS (OCT 1993)
Provided the sponsoring Government Activity is not disclosed, the Offeror is not prohibited from subcontracting with Canadian Contractors, unless the work to be performed under any resulting contract is classified in nature.
Federal Acquisition Regulation (FAR), Part 44, Subcontracting Policies and Procedures, particularly Subpart 44.2 - Consent to Subcontract, applies.
In addition to those clauses which the prime contractor is normally required to insert in subcontracts, the following must be included, as required.
FAR 52.225-11 Restrictions on Certain Foreign Purchases (APR 91) DFARS 252.225-7026 Reporting of Overseas Subcontracts (DEC 1991) (End of Notice)
H.5 352.290-9006 UTILIZATION OF PROJECT PERSONNEL (OCT 1993)
Any technical personnel who, during the performance of the contract, are assigned by the Con tractor to replace the technical personnel identified by the Contractor in his technical proposal (or during negotiations) for work on the Project shall possess at least the same technical qualifications and be capable of assuring satisfactory performance of the work required by this contract.
H.6 352.227-9001 SOFTWARE CERTIFICATION (OCT 1993)
The Contractor certifies that, to the best of its knowledge and belief, software provided under this contract does not contain any malicious code, program, or other internal component (e.g., computer virus) which could damage, destroy, or alter software, firmware, or hardware or which could reveal any data or other information accessed through or processed by the software. Further, the Contractor shall immediately inform the Contracting Officer upon reasonable suspicion that any software provided hereunder may cause the harm described above.
(End of clause)
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H.7 352.243-9000 NOTICE: UNAUTHORIZED CHANGE ORDERS (APR 1989)
The Contracting Officer (CO) may appoint a Contracting Officer's Representative, Inspector, or other technical representative. No order, statement or conduct of any such person shall constitute a change under the "Changes" clause of this contract or entitle the Contractor to an equitable adjustment of the contract price or delivery schedule under that or any other
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document clause. No appointee of the CO is acting within the limits of his/her authority when he/she attempts to change the contract. The contract shall not be changed except by issuance of a written change order signed by the CO. No representative of the CO shall be authorized to issue a written change order under the "Changes" clause of this contract.
H.8 IMPORTANT NOTICE
(a) The Contractor shall not accept any instruction issued by any person other than the Contracting Officer or the Contracting Officer's Representative(s) (CORs) acting within the limits of their authority. CORs will be designated in writing to the Contractor, and the scope of their authority will be set forth therein.
(b) No information, other than that which may be contained in an authorized amendment to the contract duly issued by the Contracting Officer will be considered as grounds for deviation from any stipulation of the contract, the specifications, or reference drawings.
H.9 SUBCONTRACTS
The contractor shall not enter into a subcontract involving the type of work specified herein without obtaining, in advance, the written approval of the Contacting Officer and subject to the conditions that he may prescribe.
H.10 352.204-9009 ACQUISITION OF COMSEC EQUIPMENT, COMPONENTS, AND PARTS OUTSIDE THE UNITED STATES (OCT 1993)
(a) Definitions
(1) "COMSEC equipment", as used in this clause, means equipment designed to provide security to telecommunications by converting information to a form unintelligible to an unauthorized interceptor and by reconverting such information to its original form for authorized recipients, as well as equipment designed specifically to aid in, or as an essential element of, the conversion process. COMSEC equipment is crypto-equipment, crypto-ancillary equipment, crypto-production equipment, and authentication equipment.
(2) "Component", as used in this clause, means any assembly or subassembly incorporated directly into an end product. An assembly is a group of parts, elements, subassemblies and circuits assembled as a separately removable item of COMSEC equipment. A subassembly is a major subdivision of an assembly.
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(3) "Part", as used in this clause, means any single. unassembled element of a major or minor subassembly, accessory, or attachment which is not normally subject to disassembly without the destruction or the impairment of the design use.
(4) "Contractor", as used in this clause, means the supplier of the end item and associated support items to the Government under the terms of a specific contract.
(5) "Subcontractor", as used in this clause, means a person or business that contracts to provide some service or material necessary for the performance of another's contract.
(6) "Vendor", as used in this clause, means a person or agency that sells supplies or mat erials to a Contractor or subcontractor.
(7) "United States", as used in this clause, means all areas under the territorial sovereignty of the United States (U.S.) and the Trust Territory of the Pacific Islands.
(b) No subcontracts or purchase orders which involve design, manufacture, production, assembly, inspection, or test in a location not in the U.S., of COMSEC equipment, components, or parts, which are not covered by a specification or standard listed in MIL-P-11268, MIL-E-16400, or MIL-E-5400 shall be made under this contract without the prior written approval of the Contracting Officer. The Contractor further agrees to include this clause in any or all subcontracts or purchase orders he may let pursuant to this contract for COMSEC equipment, components, or parts, except those subcontracts/purchase orders for which waiver is required (i.e., non-US sources). Under no circumstances will any custom large scale integrated circuit or likeness thereof be sent outside the U.S. for any reason.
(c) Requests for permission to deviate from the requirements of paragraph (b) will be handled on a case-by-case-basis through the Contracting Officer.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Each waiver request must provide a strong and compelling reason why the waiver should be granted in addition to the benefit the Government would gain by the granting of a waiver. Furthermore, prior to the approval of any waiver, the Contractor shall demonstrate to the Government through submission of an acceptable Anonymity Plan (data item Dl-NDTl-80566), that procedures are in place to ensure that the offshore vendor remains unaware of the relationship between the prime contractor and the Department of Defense and/or Maryland Procurement Office (MPO). As a minimum, the following conditions will be imposed if a waiver is granted:
(1) Purchase orders and drawings provided to a subcontractor or vendor outside the United States shall not carry any identification that reveals a contractor relationship with the Department of Defense and the MPO. This restriction includes the Contractor's prime contract number with the Government and 98230/0NXXXXXX parts identification numbers.
(2) The prime contractor, when required to mark items with the manufacturer's code 98230 or drawing numbers 0NXXXXXX, shall only mark these items at a facility located within the U.S. Marking parts with 0N markings and the 98230 code specifics that the parts are for MPO use only. lf parts marked with the MPO identification code (including rejects and parts not usable for MPO programs) are allocated for non-MPO programs or for resale to other customers, then markings as-
MDA904-97-C-0424 17 of 34 sociated with the MPO identification code must be removed from the parts before the parts are sent to non-MPO programs or other customers.
(3) The Government has the right to an equitable adjustment to the contract price as consideration for granting approval to acquire COMSEC equipment, components and parts from sources outside the United States (unless the waiver * as granted prior to contract award).
H.l l 352.204-9008 CONTROL OF COMMUNICATIONS SECURITY (COMSEC) MATERIAL (OCT 1993)
The accountable COMSEC material produced under the contract, or provided as Government Furnished Property. will be distributed through COMSEC distribution channels. The Contractor shall establish a COMSEC account, nominate a custodian and alternate custodian, and control the material in accordance with procedures specified in the "COMSEC Supplement to the Industrial Security Manual for Safeguarding Information" dated April 1975. Existing COMSEC accounts established as a result of previous or other contracts may be used.
H.12 352.227-9004 YEAR 2000 COMPLIANCE - NON-COMMERCIAL ITEMS (JAN 1997)
Definition: INFORMATION TECHNOLOGY means any equipment or interconnected system or subsystem of equipment, that is used in the automatic acquisition, storage, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of data or information. This is for equipment used by the government directly or is used by a contractor under a contract with the Agency which (1) requires the use of such equipment, or (2) requires the use, to a significant extent, of such equipment in the performance of a service of the furnishing of a product. Information technology includes computers, ancillary equipment, software, firmware and similar procedures, services (including support services), and related resources. lt does NOT include any equipment that is acquired by a Federal Contractor incidental to a Federal contract.
The contractor warrants that each non-commercial item of information technology delivered or developed under this contract and listed below shall be able to accurately process date data (including but not limited to: calculating, comparing, and sequencing) from, into and between the twentieth and twenty-first centuries, including Leap year calculations, when used in accordance with the item documentation provided by the contractor, provided that all listed or unlisted items (e.g., hardware, software, firmware) used in combination with such listed item properly exchange date data with it. The words "listed below" refer to products that the offeror has identified as being Year 2000 compliant in response to the procuring agency's specifications. If the contract requires that specific listed items must perform as a system in accordance with the foregoing warranty, then that warranty shall apply to those listed items as a system. he duration of this warranty and the remedies available to the Government for breach of this warranty shall be as defined in, and subject to, the terms and limitations of any general warranty provisions of this contract. Nothing in this warranty shall be construed to limit any rights or remedies the Government may otherwise have under this contract with respect to defects other than Year 2000 performance.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document * greater than
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H.13 352.217-9001 OPTION TO EXTEND THE TERM OF THE CONTRACT (OCT 1993)
(a) The Government may unilaterally extend the term of this contract by written notice to the Contractor within 60 days following the President's signing of the annual Appropriations Act or October 1, whichever is later, for each respective option, provided that the Contracting Officer has given preliminary notice. in writing, to the Contractor, of the Government's intent to renew, at least 60 days prior to the expiration date of the current period of performance. Such preliminary notice will not be deemed to commit the Government to renewals. If the Government exercises this right to renew, the contract, as renewed shall be deemed to include this option clause. The total duration of this contract, including the exercise of any option to renew under this clause, shall not exceed 36 months.
(b) The composition of the total man-hours of direct labor and other direct costs for each option is as follows: OPTION YEAR 1 - FISCAL YEAR 1998 (I October 1997 - 30 September 1998)
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document OPTION YEAR 2 - FISCAL YEAR 1999 (1 October 1998 - 30 September 1999)
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0002 Award Fee Pool, to be determined in For the Period $64,553.00 accordance with the Award Fee Plan for Multi-Level Information System Security Initiative Crypt Card System Analysis and Library and Driver Architecture and Development, dated 10 June 1997 (Rev. 2). There shall be one evaluation of performance at the end of the period of performance (Date of contract award through 30 September 1997.) If the Government exercises the options to extend the term of the contract, there shall be an evaluation of in equal amounts of $2,689.71.
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at actual costs; meals and incidental expenses shall be reimbursed at the applicable flat rate. The total of lodging, meals, and incidental expenses shall not exceed the established rate for each location set forth in the "Federal Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and the Standardized Regulation (Government Civilians Foreign Areas), Section 925," as applicable. These costs shall be directly chargeable to this contract in accordance with the contractor's established method of distributing such costs. First class travel shall not be reimbursed. Contractor shall be reimbursed for coach rates only. Travel is non fee bearing. Invoices which request reimbursement of travel expenses must be accompanied by airline ticket subs, hotel/motel receipts, and rental car receipts.
H.14 Contractor Participation in Contractor Performance Evaluation Assessments
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document This contract will be subject to periodic Contractor Performance Evaluation Assessments. In accordance with FAR 42.1502, the Maryland Procurement Office maintains a database on Contractor past performance applicable to all contracts over $500,000. Information on the performance of this contract will be maintained in the database and updated on a yearly basis (if contract period of performance exceeds one year) and at the completion of the contract. The Contractor's participation in this process, in terms of review of the Contractor Performance Evaluation Assessment form, shall not cause an increase in the estimated cost/price of this contract. Any costs which are anticipated to be expended towards participation in this review process should be (have been) proposed in the initial price of this contract.
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H.15 DELINQUENT AWARD FEE MODIFICATION PENALTY
The Contracting Officer shall issue a contract modification identifying the results of the fee determination official's findings for each performance evaluation period in accordance with a schedule set forth in the current Award Fee Plan as cited in the contract. If a contract modification is not issued in compliance with the timeframe specified in the Award Fee Plan, the contractor shall be entitled to interest on the determined award fee amount for that specific period at the rate established by the secretary of the Treasury under Section 12 of the Contract Disputes Act of 1978 (41 U.S.C. 611) that is in effect on the modification issuance date. This rate is referred to as the "Treasury Rate", and is published in the FEDERAL REGISTER semiannually or about January 1 and July 1. The interest on any late award fee determination amount will be calculated using the following formula from the first day after the expiration of the timeframe specified in the current Award Fee Plan through the actual date of the contract modification identifying what award fee has been earned for that specific period. In the event that provisional billing has been authorized under the contract, the Government shall only be liable for interest on the balance between the final Award Fee determination for the specified period and what has been authorized under the Provisional Billing clause. Notwithstanding the above, the Government shall not be liable for any interest penalty that is in excess of the sum total of the Award Fee available in the current evaluation period and the unearned Award Fee from the prior evaluation period at the time of the contract modification.
However, in the event that the Government has exercised an option or renewed the contract into a subsequent fiscal year, where annual appropriations (O&M funds) were utilized to fund the action, the Government's liability for any interest penalty in the first evaluation period of that year shall be restricted to the amount of the Award Fee available in the first evaluation period ONLY. Subsequent Award Fee modifications for evaluation periods during that fiscal year shall be subject to aforementioned terms where the Government's liability for interest will be restricted to the sum total of the amount of Award Fee available in the current evaluation period and the unearned Award Fee from the prior evaluation period.
Current Treasury Rate % x No. of days Govt. is delinquent x (Amount of Award Fee earned # of Annual Calendar Days (Beyond 60 Calendar Days) in the period - Amount of Provisional Award Fee authorized for the period)
IF: Available Award Fee in the Period $250,000 Amount authorized for Provisional Billing 50.00% $125,000 Amount Earned in the Period 90.00% $225,000 Award Fee Plan Modification Time Frame 60 Government Days Late (beyond 60 days) 60 Current Treasury Rate 5.50%
CALCULATION: [(5.5% / 360) X 60] X (225,000 - 125,000) = 916.67 (End of Clause)
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SECTION I - CONTRACT CLAUSES l.l REFERENCED CLAUSES. The following contract clauses pertinent to this section are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
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252.232-7006 Reduction or Suspension of Contract Payments Upon Finding of Fraud (AUG 1992) 252.243-7001 Pricing of Contract Modifications (DEC 1991) 252.247-7023 Transportation of Supplies by Sea (NOV 1995
1.2 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. (End of clause)
1.3 52.232-33 MANDATORY INFORMATION FOR ELECTRONIC FUNDS TRANSFER PAYMENT (AUG 1996)
(a) Method of payment. Payments by the Government under this contract, including invoice and contract financing payments, may be made by check or electronic funds transfer (EFT) at the option of the Government. If payment is made by EFT, the Government may, at its option, also forward the associated payment information by electronic transfer. As used in this clause, the term "EFT" refers to the funds transfer and may also include the information transfer.
(b) Mandatory submission of Contractor's EFT information.
(1) The Contractor is required, as a condition to any payment under this contract, to provide the Government with the information required to make payment by EFT as described in paragraph (d) of this clause, unless the payment office determines that submission of the information is not required. However, until January 1, 1999, in the event the Contractor certifies in writing to the payment office that the Contractor does not have an account with a financial
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document institution or an authorized payment agent, payment shall be made by other than EFT. For any payments to be made after January 1, 1999, the Contractor shall provide EFT information as described in paragraph (d) of this clause.
(2) If the Contractor provides EFT information applicable to multiple contracts, the Contractor shall specifically state the applicability of this EFT information in terms acceptable to the payment office.
(c) Contractor's EFT information. Prior to submission of the first request for payment (whether for invoice or contract financing payment) under this contract, the Contractor shall provide the information required to make contract payment by EFT, as described in paragraph (d) of this clause, directly to the Government payment office named in this contract. If more than one payment office is named for the contract, the Contractor shall provide a separate notice to each office. ln the event that the EFT information changes, the Contractor shall be responsible for providing the changed information to the designated payment office(s).
(d) Required EFT information. The Government may make payment by EFT through either an Automated Clearing House (ACH) subject to the banking laws of the United States or the Federal Reserve Wire Transfer System at the Government's option. The Contractor shall provide
MDA904-97-C-0424 24 of 34 the following information for both methods in a form acceptable to the designated payment office. The Contractor may supply this data for this or multiple contracts (sec paragraph (b) of this clause).
(1) The contract number to which this notice applies.
(2) The Contractor's name and remittance address, as stated in the contract, and account number at the Contractor's financial agent.
(3) The signature (manual or electronic, as appropriate), title, and telephone number of the Contractor official authorized to provide this information.
(4) For ACH payments only:
(i) Name, address, and 9-digit Routing Transit Number of the Contractor's financial agent.
(ii) Contractor's account number and the type of account (checking, saving, or lockbox).
(5) For Federal Reserve Wire Transfer System payments only:
(i) Name, address, telegraphic abbreviation, and the 9- digit Routing Transit Number for the Contractor's financial agent.
(ii) If the Contractor's financial agent is not directly on-line to the Federal Reserve Wire Transfer System and, therefore, not the receiver of the wire transfer payment, the Contractor shall also provide the name, address, and 9-digit Routing Transit Number of the correspondent financial institution receiving the wire transfer payment.
(e) Suspension of payment.
(1) Notwithstanding the provisions of any other clause of this contract, the Government is not required to make any payment under this contract until after receipt, by the designated payment office, of the correct EFT payment information from the Contractor or a certificate submitted in accordance with paragraph (b) of this clause. Until receipt of the correct EFT information, any invoice or contract financing request shall be deemed not to be a valid invoice or contact financing request as defined in the Prompt Payment clause of this contract.
(2) If the EFT information changes after submission of correct EFT information, the Government shall begin using the changed EFT information no later than the 30th day after its receipt to the extent payment is made by EFT. However, the Contractor may request that no further payments be made until the changed EFT information is implemented by the payment office. If such suspension would result in a late payment under the Prompt Payment clause of this contract, the Contractor's request for suspension shall extend the due date for payment by the number of days of the suspension.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (f) Contractor EFT arrangements. The Contractor shall designate a single financial agent capable of receiving and processing the electronic funds transfer using the EFT methods described in paragraph (d) of this clause. The Contractor shall pay all fees and charges for receipt and processing of transfers.
(g) Liability for uncompleted or erroneous transfers.
(1) If an uncompleted or erroneous transfer occurs because the Government failed to use the Contractor-provided EFT information in the correct manner, the Government remains responsible for (i) making a correct payment, (ii) paying any prompt payment penalty due, and (iii) recovering any erroneously directed funds.
(2) If an uncompleted or erroneous transfer occurs because Contractor-provided EFT information was incorrect at the time of Government release of the EFT payment transaction instruction to the Federal Reserve System, and-
(i) If the funds are no longer under the control of the payment office, the Government is deemed to have made payment and the Contractor is responsible for recovery of any erroneously directed funds; or
(ii) If the funds remain under the control of the payment office, the Government retains the right to either make payment by mail or suspend the payment in accordance with paragraph (e) of this clause.
(h) EFT and prompt payment.
(1) A payment shall be deemed to have been made in a timely manner in accordance with the Prompt Payment clause of this contract if, in the EFT payment transaction instruction given to the Federal Reserve System, the date specified for settlement of the payment is on or before the prompt payment due date, provided the specified payment date is a valid date under the rules of the Federal Reserve System.
(2) When payment cannot be made by EFT because of incorrect EFT information provided by the Contractor, no interest penalty is due after the date of the uncompleted or erroneous payment transaction, provided that notice of the defective EFT information is issued to the Contractor within 7 days after the Government is notified of the defective EFT information.
(i) EFT and assignment of claims. If the Contractor assigns the proceeds of this contract as provided for in the Assignment of Claims clause of this contract, the assignee shall provide the assignee EFT information required by paragraph (d) of this clause. In all respects, the requirements of this clause shall apply to the assignee as if it were the Contractor. EFT information which shows the ultimate recipient of the transfer to be other than the Contractor, in the absence of a proper assignment of claims acceptable to the Government, is incorrect EFT information within the meaning of paragraph (e) of this clause.
(j) Payment office discretion. If the Contractor does not wish to receive payment by EFT methods for one or more payments, the Contractor may submit a request to the designated
MDA904-97-C-0424 26 of 34 payment office to refrain from requiring EFT information or using the EFT payment method. The decision to grant the request is solely that of the Government.
(k) Change of EFT information by financial agent. The Contractor agrees that the Contractor's financial agent may notify the Government of a change to the routing transit number, Contractor account number, or account type. The Government shall use the changed data in accordance with paragraph (e)(2) of this clause. The Contractor agrees that the information provided by the agent is deemed to be correct information as if it were provided by the Contractor. The Contractor agrees that the agent's notice of changed EFT data is deemed to be a request by the Contractor in accordance with paragraph (e)(2) that no further payments be made until the changed EFT information is implemented by the payment office.
(End of clause)
1.4 252.247-7023 TRANSPORTATION OF SUPPLIES BY SEA (DEC 1991)
(a) Definitions.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document As used in this clause --
(1) "Components" means articles materials, and supplies incorporated directly into end products at any level of manufactures fabrication, or assembly by the Contractor or any subcontractor.
(2) "Department of Defense" (DoD) means the Army, Navy, Air Force, Marine Corps, and defense agencies.
(3) "Foreign flag vessel" means any vessel that is not a U.S. - flag vessel.
(4) "Ocean transportation" means any transportation aboard a ship, vessel, boat, barge, or ferry through international waters.
(5) "Subcontractor" means a supplier, materialman, distributor, or vendor at any level below the prime contractor whose contractual obligation to perform results from, or is conditioned upon, award of the prime contract and who is performing any part of the work or other requirement of the prime contract.
(6) "Supplies" means all property, except land and interests in land, that is clearly identifiable for eventual use by or owned by the DoD at the time of transportation by sea.
(i) An item is clearly identifiable for eventual use by the DoD if, for example, the contract documentation contains a reference to a DoD contract number or a military destination.
(ii) "Supplies" includes (but is not limited to) public works; buildings and facilities; ships; floating equipment and vessels of every character, type, and description, with parts, subassemblies, accessories, and equipment; machine tools; material; equipment; stores of all kinds; end items; construction materials; and components of the foregoing.
(7) "U.S.-flag vessel" means a vessel of the United States or belonging to the United States, including any vessel registered or having national status under the laws of the United States.
(b) The Contractor shall employ U.S.-flag vessels in the transportation by sea of any supplies to be furnished in the performance of this contract. The Contractor and its
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subcontractors may request that the Contracting Officer authorize shipment in foreign-flag vessels, or designate available U.S.-flag vessels, if the Contractor or a subcontractor believes that --
(1) U.S.-flag vessels are not available for timely shipment; (2) The freight charges are inordinately excessive or unreasonable; or (3) Freight charges are higher than charges to private persons for transportation of like goods.
(c) The Contractor must submit any request for use of other than U.S.-flag vessels in writing to the Contracting Officer at least 45 days prior to the sailing date necessary to meet its delivery schedules. The Contracting Officer's failure to grant approvals to meet the shipper's sailing date will not of itself constitute a compensable delay under this or any other clause of this contract. Requests shall contain at a minimum --
(1) Type, weight, and cube of cargo; (2) Required shipping date; (3) Special handling and discharge requirements; (4) Loading and discharge points; (5) Name of shipper and consignee; (6) Prime contract number; and
(7) A documented description of efforts made to secure U.S.-flag vessels, including points of contact (with names and telephone numbers) with at least two U.S.-flag carriers contacted. Copies of telephone notes, telegraphic and facsimile message or letters will be sufficient for this purpose.
(d) The Contractor shall, within 30 days after each shipment covered by this clause, provide the Contracting Officer and the Division of National Cargo, Office of Market Development, Maritime Administration, U.S. Department of Transportation, Washington, DC 20590, one copy of the rated on board vessel operating carrier's ocean bill of lading, which shall contain the following information --
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (1) Prime contract number; (2) Name of vessel; (3) Vessel flag of registry; (4) Date of loading; (5) Port of loading; (6) Port of final discharge; (7) Description of commodity; (8) Gross weight in pounds and cubic feet if available; (9) Total ocean freight in U.S. dollars; and (10) Name of the steamship company.
(c) The Contractor agrees to provide with its final invoice under this contract a representation that to the best of its knowledge and belief --
(1) No ocean transportation was used in the performance of this contract;
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(2) Ocean transportation was used and only U.S.-flag vessels were used for all ocean shipments under the contract; (3) Ocean transportation was used and the Contractor has the written consent of the Contacting Officer for all non-U.S.-flag ocean transportation; or
(4) Ocean transportation was used, and some or all of the shipments were made on non-U.S.-flag vessels without the written consent of the Contracting Officer. The Contractor shall describe these shipments in the following format:
ITEM CONTRACT DESCRIPTION LINE ITEMS QUANTITY
TOTAL
(f) If the final invoice does not include the required representation. the Government will reject and return it to the Contractor as an improper invoice for the purposes of the Prompt Payment clause of this contract. In the event there has been unauthorized use of non-U.S.-flag vessels in the performance of this contract, the Contracting Officer is entitled to equitably adjust the contract, based on the unauthorized use.
(g) The Contractor shall include this clause, including this paragraph (g) in all subcontracts under this contract, which exceed the small purchase limitation of section 13.000 of the Federal Acquisition Regulation.
(End of clause)
I.5 REFERENCED CLAUSES - WHEN APPLICABLE. The following clause(s) marked (X) when applicable) pertinent to this section is/are hereby incorporated by reference:
MDA904-97-C-0424 29 of 34
( ) 52.230-2 Cost Accounting Standards (AUG 1992) ( ) 52.230-3 Disclosure and Consistency of Cost Accounting Practices (APR 1996) ( ) 52.230-4 Consistency in Cost Accounting Practices (AUG 1992) ( ) 52.230-5 Cost Accounting Standards - Educational Institution (APR 1996) ( ) 52.230-6 Administration of Cost Accounting Standards (APR 1996) ( ) 52.232-4 Payments Under Transportation Contracts and Transportation Related Service Contracts (APR 1984) (X) 52.232-9 Limitation on Withholding of Payments (APR 1984) ( ) 52.232-16 Progress Payments (JUL 1991) ( ) 52.232-16 Progress Payments (JUL 1991) Alternate I (AUG 1987) ( ) 52.232-18 Availability of Funds (APR 1984) ( ) 52.23224 Prohibition of Assignment of Claims (JAN 1986) (X) 52.232-25 Prompt Payment (MAR 1994) ( ) 52.232-33 Mandatory Information for Electronic Funds Transfer Payment (AUG 1996) ( ) 52.232-34 Optional Information for Electronic Funds Transfer Payment (AUG 1996) (X) 52.233-1 Disputes (OCT 1995)
MDA904-97-C-0424 30 of 34
MDA904-97-C-0424 31 of 34
( ) 252.225-7022 Restriction on Acquisition of Polyacrylonitrile (PAN) Based Carbon Fiber (DEC 1991) ( ) 252.225-7024 Restriction on Acquisition of Night Vision Image Intensifier Tubes and Devices (DEC 1991) ( ) 252.225-7025 Foreign Source Restrictions (SEP 1996) ( ) 252.225-7026 Reporting of Overseas Subcontracts (NOV 1995) ( ) 252.225-7028 Exclusionsay Policies and Practices of Foreign Governments (DEC 1991) ( ) 252.225-7032 Waiver of United Kingdom Levies (OCT 1992) ( ) 252.225-7036 North American Free Trade Agreement Implementation Act (JAN 1994) ( ) 252.225-7036 North American Free Trade Agreement Implementation Act (JAN
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1994) - Alternate I (MAY 1995) ( ) 252.225-7037 Duty-Free Entry - NAFTA Country End Products and Supplies (JAN 1994) ( ) 252.226-7000 Notice of Historically Black Colleges or Universities and Minority Institution Set-asides (APR 1994) (X) 252.227-7013 Rights in Technical Data - Noncommercial Items (NOV 1995) (X) 252.227-7014 Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995) ( ) 252.227-7014 Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995) ( ) 252.227-7019 Validation of Asserted Restrictions - Computer Software (JUN 1995) ( ) 252.227-7020 Rights in Data--Special Works (JUN 1995) ( ) 252.227-7021 Rights in Data--Existing Work (MAR 1979) ( ) 252.227-7025 Limitation on the Use or Disclosure of Government-Furnished Information Marked With Restrictive Legends (JUN 1995) ( ) 252.227-7026 Deferred Delivery of Technical Data or Computer Software (APR 1988) ( ) 252.227-7027 Deferred Ordering of Technical Data or Computer Software (APR 1988) (X) 252.227-7030 Technical Data-Withholding of Payments (OCT 1988) ( ) 252.227-7032 Rights in Technical Data and Computer Software (Foreign) (JUN 1975) (X) 252.227-7036 Certification of Technical Data Conformity (MAY 1987) (X) 252.227-7037 Validation of Restrictive Markings Technical Data (NOV 1995) ( ) 252.227-7039 Patents - Reporting of Subject Inventions (APR 1990) ( ) 252.228-7000 Reimbursement for War-Hazard Losses (DEC 1991) ( ) 252.228-7003 Capture and Detention (DEC 1991) ( ) 252.232-7002 Progress Payments for Foreign Military Sales Acquisitions (DEC 1991) ( ) 252.232-7004 DoD Progress Payment Rates (FEB 1996) ( ) 252.232-7007 Limitation of Government's Obligation (AUG 1993) ( ) 252.232-7007 Limitation of Government s Obligation (AUG 1993) - Alternate I (AUG 1993) (X) 252.233-7000 Certification of Claims and Requests for Adjustment or Relief (MAY 1994) ( ) 252.234-7001 Cost/Schedule Control Systems (DEC 1991) ( ) 252.239-7000 Protection Against Compromising Emanations (DEC 1991) ( ) 252.239-7002 Access (DEC 1991) ( ) 252.242-7000 Postaward Conference (DEC 1991) ( ) 252.242-7003 Application for U.S. Government Shipping Documentation/Instructions (DEC 1991) ( ) 252.242-7004 Material Management and Accounting System (SEP 1996) ( ) 252.245-7000 Government-Furnished Mapping, Charting and Geodesy Property (DEC 1991) ( ) 252.245-7001 Reports of Government Property (MAY 1994) (X) 252.246-7000 Material Inspection and Receiving Report (DEC 1991) ( ) 252.246-7001 Warranty of Data (DEC 1991) ( ) 252.246-7001 Warranty of Data (DEC 1991) - Alternate I (DEC 1991) ( ) 252.246-7001 Warranty of Data (DEC 1991) - Alternate II (DEC 1991) ( ) 252.249-7001 Notification of substantial Impact on Employment (DEC 1991) ( ) 252.249-7002 Notification of Proposed Program Termination or Reduction (MAY 1995) (X) 252.251-7000 Ordering From Government Supply Sources (MAY 1995)
FULL TEXT CLAUSES - WHEN APPLICABLE. Pursuant to FAR 52 102-2, the following clauses (marked (X) when applicable) shall be incorporated in this solicitation and/or contract in full text Therefore, a copy of the applicable clause(s) follows:
CLAUSE NO. TITLE
FAR CLAUSES
( ) 52.209-1 Qualification Requirement (FEB 1995) ( ) 52.209-3 First Article Approval - Contractor Testing (SEP 1989) ( ) 52.209-3 First Article Approval - Contractor Testing (SEP 1989) - Alternate I (JAN 1997) ( ) 52.209-3 First Article Approval - Contractor Testing (SEP 1989) - Alternate II (SEP 1989) ( ) 52.209-4 First Article Approval - Government Testing (SEP 1989)
( ) 52.209-4 First Article Approval - Government Testing (SEP 1989) - Alternate I (JAN 1996) ( ) 52.209-4 First Article Approval - Government Testing (SEP 1989) - Alternate II (SEP 1989) (X) 52.215-42 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data Modifications (JAN 1997) - Alternative 1 (OCT 1995) ( ) 52.215 42 Requirements for Cost or Pricing Data or Information Other
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Than Cost or Pricing Data Modifications (JAN 1997) - Alternate III (OCT 1995) ( ) 52.215-42 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data Modifications (JAN 1997) - Alternate IV (OCT 1995) ( ) 52.216-16 Incentive Price Revision - Firm Target (FEB 1997) ( ) 52.216-16 Incentive Price Revision - Firm Target (FEB 1997) - Alternate I (APR 1984) ( ) 52.216-17 Incentive Price Revision - Successive Targets (FEB 1997) ( ) 52.216-17 Incentive Price Revision - Successive Targets (FEB 1997) - Alternate I (APR 1984)
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( ) 52.216-23 Execution and Commencement of Work (APR 1984) ( ) 52.216-24 Limitation of Government Liability (APR 1984) ( ) 52.216-25 Contract Definitization (APR 1984) ( ) 52.216 25 Contract Definitization (APR 1984) - Alternate I (APR 1984) ( ) 52.217-6 Option for Increased Quantity (APR 1984) (X) 52.217-9 Option to Extend the Term of the Contract (MAR 1989) ( ) 52.222-26 Equal Opportunity (APR 1984) - Alternate (APR 1984) ( ) 52.222-42 Statement of Equivalent Rates for Federal Hires (MAY 1989) ( ) 52.222-47 SCA Minimum Wages and Fringe Benefits Applicable to Successor Contract Pursuant to Predecessor Contractor Collective Bargaining Agreements (CBA) (MAY 1989) ( ) 52.222-49 Service Contract Act - Place of Performance Unknown (MAY 1989) ( ) 52.227-3 Patent Indemnity (APR 1984) - Alternate I (APR 1984) ( ) 52.227-3 Patent Indemnity (APR 1984) Alternate II (APR 1984) ( ) 52.227-3 Patent Indemnity (APR 1984) - Alternate III (JUN 1995) ( ) 52.227-5 Waiver of Indemnity (APR 1984) ( ) 52.227-11 Patent Rights - Retention by the Contractor (Short Form) (JUN 1989) - Alternate I (JUN 1989) ( ) 52.227-12 Patent Rights - Retention by the Contractor (Long Form) (JAN 1997) Alternate I (JUN 1989) ( ) 52.227-13 Patent Rights - Acquisition by the Government (JAN 1997) - Alternate I (JUN 1989) ( ) 52.229-7 Taxes--Fixed-Price Contracts with Foreign Governments (JAN 1991) ( ) 52.232-16 Progress Payments (JUL 1991) - Alternate II (AUG 1987) ( ) 52.243-7 Notification of Changes (APR 1984) ( ) 52.244 1 Subcontracts (Fixed Price Contracts) (FEB 1995) ( ) 52.244-1 Subcontracts (Fixed Price Contracts) (FEB 1995) Alternate I (APR 1984) ( ) 52.244-2 Subcontracts Under Cost-Reimbursement and Letter Contracts (FEB 1997) - Alternate I (AUG 1996) ( ) 52.246 20 Warranty of Services (APR 1984) ( ) 52.247-66 Returnable Cylinders (MAY 1994) ( ) 52.252-4 Alterations in Contract (APR 1984) ( ) 52.252-6 Authorized Deviations in Clauses (APR 1984)
DFARS CLAUSES
( ) 252.217-7027 Contract Definitization (FEB 1996) ( ) 252.219-7005 Incentive for Subcontracting with small Businesses, Small Disadvantaged Businesses, Historically Black Colleges and Universities and Minority Institutions (NOV 1995) ( ) 252.219-7005 Incentive for Subcontracting with Small Businesses, Small Disadvantaged Businesses, Historically Black Colleges and Universities and Minority Institutions (NOV 1995) - Alternate I (DEC 1991) ( ) 252.225-7027 Limitation on Sales Commissions and Fees (DEC 1991) ( ) 252.232-7003 Flexible Progress Payments (DEC 1991) ( ) 252.232-7007 Limitation of Government's Obligation (AUG 1993) ( ) 252.239-7016 Telecommunications Security Equipment, Devices, Techniques and Services (DEC 1991) ( ) 252.243-7000 Engineering Change Proposals (MAY 1994) ( ) 252.243-7000 Engineering Change Proposals (MAY 1994) - Alternate I (MAY 1994) ( ) 252.247-7024 Notification of Transportation of Supplies by Sea (NOV 1995) ( ) 252.249-7000 Special Termination Costs (DEC 1991)
I.6 THE FOLLOWING 8(A) CLAUSES, PROVISIONS, AND CERTIFICATIONS ARE IN CORPORATED:
PART 1 - CERTIFICATION OF SUBCONTRACTING
I certify that at least the percentage of work required by 13 CFR 124.314 shall be performed by employees of my firm and the SBA approval will be obtained prior
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to entering a subcontract with any other concern. Those percentages are:
[X] SERVICES (except construction) -- At least 50 percent of the cost of contract performance incurred for labor must be expended for employees of an 8(a) concern.
[_] SUPPLIES (other than from regular dealers) -- At least 50 percent of the cost of manufacturing that supplies, not including the ocst of material.
MDA904-97-C-0424 33 of 34
[_] GENERAL CONSTRUCTION -- At least 15 percent of the cost of the contract, not including the cost of materials. must be expended or employees of the 8 (a) concern.
[_] CONSTRUCTION BY SPECIAL TRADE CONTRACTORS -- At least 25 percent of the cost of the contract, not including the cost of materials must be expended for employees of the 8 (a) concern.
PART 2
I hereby request permission to subcontract with ______for the amount specified in our Best and Final Offer.
PART 3 - COMPETITIVE BUSINESS MIX CERTIFICATION
(A) [X] FIRM NAME: LITRONICS INC ______is in the development stage.
(B) [ ] FIRM NAME: ______acknowledges that it is currently in the transition stage of the 8 (a) Program Participation and certifies that it is in compliance with the non-8(a) business activity targets established pursuant to 13 CFR 124.312(c) (4) and (5).
(C) [ ] FIRM NAME: ______certifies that it is in compliance with the remedial measures imposed by SBA, if any, pursuant to 13 CFR 124.312(c) (12). Disrep resentation by falsely certifying to past compliance with the non-8(a) business activity targets established in the business plan approved by SBA shall subject that individual to:
(1) Punishment by a fine of not more than $500,000 or imprisonment for not more than 10 years, or both;
(2) The administrative remedies prescribed by th eProgram fraud Civil Remedies Act of 1986 (31 USC 3801.3812);
(3) Suspension and debarment as specified in 13 CFR 145 of Subpart 9.4 of Title 48 Code of Federal Regulations (or any successor regulation) on the basis that such misrepresentation indicates a lack of business integrity that seriously and directly affects the present responsibility of a person or entity to transact business with the Federal Government; and
(4) Ineligibility for participation in any program or activity conducted under the authority of the Small Business Act or the Small Business investment Act for a period of not to exceed 3 years.
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FIRM NAME: ______
ADDRESS: ______
CITY, STATE, ZIP: ______
______Signature of President, Partner or Proprietor Date: ______
ORIGINAL SIGNATURES ONLY, REPRODUCTIONS WILL NOT BE ACCEPTED.
PART 4 - ADDITIONAL CLAUSES AND PROVISIONS
52.219-11 Special 8(a) Contract Conditions (FEB 1990) Name of Agency: Maryland Procurement Office
52.219-12 Special 8(a) Subcontract Conditions (FEB 1990) Prime Contract Number: Name of Agency: Maryland Procurement Office
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Name of Subcontractor:
52.219-14 Limitations on Subcontracting (JAN 1991)
52.219-17 Section 8(a) Award (DEC 1996) Name of Agency: Maryland Procurement Office
52.203-11 Certification and Disclosure Regarding Payment s to Influence Certain Federal Transactions (APR 1991)
Certification of Subcontracting
Certification of Competitive Business Mix
SECTION J - LIST OF ATTACHMENTS
J.1 Statement of Work entitled, "Multi Level Information System Security Initiative, Crypto Card System Analysis and Library and Driver Architecture and Development," dated 10 January 1997, 7 pages.
J.2 Contract Data Requirements List, DD Form 1423, dated 13 February 1997, 18 pages.
J.3 Award Fee Plan (Rev. 2), dated 10 June 1997, 5 pages.
MDA904.97-C-0424 P00009 Page 2 of 7
SECTION B - SUPPLIES/SERVICES AND PRICES is revised to include:
B.3 SUPPLIES/SERVICES (Date of Contract Modification P00009 - 30 September 1998)
UNIT CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
0001 The contractor shall furnish the HRS Gov't 6,400 XXX necessary materials. facilities, Cont'r 5,237 equipments, supplies and services of skilled professional, technical and support personnel to fulfill the requirements set forth in the Statement of Work entitled "Task Order for an Advanced Fortezza and Commercial Algorithm Smartcard, Version 2.0," dated 27 May 1998.
0001AA Program Manager X XXX $118.06 XXXX 0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX 0001AC Electronic Technician X XXX $ 69.32 XXXX 0001AD Systems Analyst X XXX $ 75.38 XXXX 0001AE Sr. Software Engineer X XXX $ 98.38 XXXX 0001AF Software Engineer X XXX $ 62.60 XXXX Total Amount CLIN 0001 Not-To-Exceed ACR. AC Government's Share $519,434.00 Contractor's Share $424,991.00
0002 Award Fee Pool, to be determined For the Period $519,934.00 in accordance with the Award Fee Determination Plan for Multi Level Information System Security Initiative Crypto Card System Analysis and Library and Driver Architecture and Development, dated 10 June 1997 (Rev. 2). There shall be one evaluation for the period, date of contract modification - 30 September 1998. The contractor is authorized to bill for up to 50% of the available award fee ($), on a monthly basis in equal amounts. ACR: AC
03 Travel For the Job Not-To-Exceed (Inclusive of Burdens) Government's Share $8,37l.00
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ACR: AC Contractor's Share $6,849.00
MDA904-97-C-0424 P00009 Page 3 of 7
SECTION C - DESCRIPTION/SPECIFICATION WORK STATEMENTS is revised to include:
C.4 Statement of Work entitled, "Task Order for an Advanced Fortezza and Commercial Algorithm Smartcard, Version 2.0" dated 27 May 1998.
C.5 The Government shall submit individual task orders to the Contractor. Upon review of the task, the contractor will review the task requirement and provide the Government with an estimate of the required labor hours, by category, material and travel for performance. If acceptable, the Government will authorize the work to proceed by signing the task order and returning it to the Contractor. The Contractor is not authorized to deviate from the specified labor hours, per labor category, by more than ten percent (10%) without prior authorization from the Contracting Officer. In the event the Contractor cannot perform the effort within the authorized deviation, a revised estimate shall be submitted to the Government for approval. If acceptable, the task order will be amended accordingly. However, in no event shall the Contractor exceed the total Not-to-Exceed portion of the contract regardless of the authorized deviation specified herein. Man Hours expended in preparing Task Order estimates shall not be directly charged to this contract.
SECTION F - DELIVERIES OR PERFORMANCE
F.7 352.211-9004 PERIOD OF PERFORMANCE (APR 1989) is added:
Section B.3 of this contract shall extend from date of contract modification to 30 September 1998, unless performance is sooner terminated under the terms of the contract. (End of Clause)
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SECTION C - CONTRACT ADMINISTRATION DATA
G.l ACCOUNTING AND APPROPRIATION DATA is revised to include ACR: AC:
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G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $42,279.50 Section B.2, and $25,971.50, Section B.3, have been obligated under this con tract towards future award fee determinations but are not available for the Contractor to bill against or incur costs against. Obligated award fee funds identified above will be released to the Contractor via subsequent modifications after the Government has rendered an award fee determination in accordance with the Award Fee Plan currently in force under this contract. Upon receipt of the aforementioned modifications, the Contractor is authorized to bill for the earned fee.
G.14 METHOD OF INVESTMENT CALCULATION / INVOICING (applicable to Section B.3 only)
The Contractor agrees that it will make an investment of 45% of total costs incurred up to a maximum investment contribution of $721,890.00. In order to implement this investment, the Contractor agrees that each of its invoices for incurred costs on the effort contained in Section B.3 will include the following information:
Total costs incurred 55% of those costs charged to the Government 45% of those costs charged to the Contractor Total amount to be paid by the Government Total investment to date by Contractor
It is further agreed by the parties that, once the maximum investment is reached, any additional costs incurred above the estimated costs contained herein that are otherwise allowable, allocable, and reasonable and in accordance with the other provisions of the contract, will be invoiced up to a total of $1,515,890.00, which total includes the contractor's maximum investment of $721,890.00, and the government's investment of $794,000.00 for the current period of performance. The contractor's maximum investment is $721,890.00. All invoices will be paid in accordance with the payment provisions stated in this contract. In no case will the contractor invoice the government for more than the Not-To-Exceed amount listed in the contract. The Contractor shall notify the Contracting Officer in writing whenever it has reason to believe that the costs it expects to incur under this contract in the next 60 days, when added to all costs previously incurred, will exceed 75 percent of the amount currently obligated on the contract. The Contractor's notice shall include an estimate of funds required to continue performance. If, after notification by the Contractor pursuant to this clause, additional funds are required to be obligated for a further period, the government will negotiate an appropriable resolution.
(End of Clause)
SECTION H - SPECIAL CONTRACTOR REQUIREMENTS IS REVISED TO INCLUDE:
H.19 352.227-9005 NOTIFICATION OF FOREIGN ORIGIN SOFTWARE AND/OR FIRMWARE (OCT 1997)
Offerors/Contractor shall notify the Contracting Officer in writing if any foreign manufactured, developed, main tained and/or modified software and/or firmware will be used or included in the deliverables under this contract. For eign-origin software and/or firmware that is merely a possible candidate for use under this contract shall also be identified. Notification pursuant to this clause must include the identity of the foreign source and the nature of the software application, and is required as soon as there is a reason to know or suspect foreign origin.
NSA reserves the right to exclude foreign-origin software and/or firmware from use under contract on a case-by-case basis. (End of clause)
H.20 352.216-9012 TECHNICAL TASK ORDERS (OCT 1993)
(a) Technical Task Orders shall be issued by the Contracting Officer or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document his/her duly authorized representative. The TTOs will include a ceiling price, beyond which the Contractor shall not incur costs.
(b) The performance of the work under each TTO order shall be subject to the technical direction and surveillance of the Contracting Officer's Representatives (CORs) who are identified under separate letter. "Technical Direction",
MDA904-97-C-0424 P00009 Page 6 of 7 as used herein, is direction to the Contractor which fills in details or otherwise completes or explains the scope of the work and specific requirements as set forth in the Statement of Work and in each TTO. Furthermore, the COR may suggest to the Contractor lines of inquiry or methods of approach with respect to work under this order. It is intended that the Technical Task Orders (TTOs) or suggestions furnished shall be within the general scope of the work as set forth in the Statement of Work and shall not constitute changes as described in the "Changes" clause.
(c) The following procedures shall be followed in initiating tasks under this order:
A TTO setting forth the detailed requirements of a particular task, together with any necessary attachments (draw ings, schematics, etc.,) shall be furnished to the Contractor in writing by a designated COR. The Contractor is obligated to perform all TTOs issued pursuant to the technical specification cited in paragraph (b), above. TTOs shall not constitute a basis for any increase in the fee or extension to the period of performance. Nothing contained in this clause authorizes the Contractor to incur costs in excess of the estimated cost or fund limitation set forth in the order.
(d) All TTOs furnished to the Contractor shall be incorporated into this order by reference. (End of Clause)
H.21 MPO 232-9009 CEILING PRICE
The price negotiated for this contract and for any subsequent job orders resulting hereunder shall be a ceiling once which the contractor exceeds at his own risk without prior approval of the Contracting Officer.
SECTION I - CONTRACT CLAUSES
1.5 REFERENCED CLAUSES IS REVISED TO INCLUDE:
52.215-2 Audits and Records - Negotiations (AUG 1996)
SECTION J - LIST OF ATTACHMENTS IS REVISED TO INCLUDE:
J.4 Statement of Work entitled, "Task Order for an Advanced Fortezza and Commercial Algorithm Smartcard, Version 2.0," dated 21 May 1998, 22 pages (previously provided).
MDA904-97-C-0424 P00009 Page 7 of 7
C. As a result of the foregoing, the total contract price is restated as follows:
D. Except as provided herein, all terms and conditions of this contract, as previously modified, remain unchanged and in full force and effect.
LITRONIC INDUSTRIES PURCHASE ORDER WORKSHEET
PO Number:MDA904-97-C-0424, P00008 Customer Number: Date: June 12, 1998 Customer: NSA Maryland Procurement Office Address: 9800 Savage Road FANX III Fort George G. Meade, MD 20755- 6000 Buyer: M. Quansy
REMARKS SECTION
1. ADDITIONAL FUNDING FOR FY98. TOTAL CONTRACT AMOUNT IS $1,239,000.00.
2. PROVIDE COPY TO BOB GRAY.
ITEM PART NUMBER QUANTITY UNIT PRICE DUE DATE TOTAL
0001 See Page 3 of Contract for 184,000.00 N/A $184,000.00 Appropriate Labor Categories
Total Price $184,000.00 Taxable NO Initiated by: Prohaska Rep: Prohaska
P00006 Page 2 of 3
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B.1 SUPPLIES/SERVICES (Basic period 27 June 1997 - 30 September 1997) is revised to read:
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL 0001 The contractor shall furnish HRS 4,832 XXX $443,445.57 the necessary materials, facilities, equipment, supplies, and services of skilled professional, technical and support personnel to fulfill the requirements set forth in the Statement of Work for Multi Level Information System Security Initiative Crypto Card System Analysis and Library and Driver Architecture and Development, dated 10 January 1997.
NOTE: The above stated amounts reflect the following revisions:
(Inclusive of Burdens) NOTE: The above stated amounts reflect the following revisions:
FROM BY TO $15,000.00 ($15,000.00) $ 0.00 0004 OTHER DIRECT COSTS For the Job Not-To-Exceed $ 3,428.43
(Inclusive of Burdens)
MDA904-97-C-0424 P00005 Page 3 of 3
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at actual costs meals and incidental expenses shall be reimbursed at the applicable flat rate. The total of lodging, meals, and incidental expenses shall not exceed the established rate for each location set forth in the "Federal Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and the Standardized Regulation (Government Civilians Foreign Areas), Section 925," as applicable. These costs shall be directly chargeable to this contract in accordance with the contractor's established method of distributing such costs. First class travel shall not be reimbursed. Contractor shall be reimbursed for coach rates only. Travel is non fee bearing. Invoices which request reimbursement of travel expenses must be accompanied by airline ticket subs, hotel/motel receipts, and rental car receipts.
SECTION G - CONTRACT ADMINISTRATION DATA G.l ACCOUNTING AND APPROPRIATION DATA, ACR: AA only, is revised to read:
3. As a result of the foregoing, the total contract value is decreased as follows:
FROM By TO
Not-To-Exceed $1,339,736.00 ($6,429.00) $1,333,307.00
4. Except as provided for herein, all terms and conditions and provisions remain unchanged and in full force and effect.
The Performance Evaluation Board discussed Litronic, Inc.'s performance during the base year award fee period via informal meetings. The conclusions reached are summarized as follows.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document TECHNICAL Staffing: . Skilled personnel were assigned to the task, and all subcontracts appear to have been well managed. . There were no problems with personnel equipped with inadequate skills working on the task. Rating: EXCELLENT
PERFORMANCE: . System Engineering produced a flexible architecture that was able to respond to numerous problems.
. Few of the many bugs in the CI Library 1.52b were the result of any deficiency in Litronic's test engineering process. While Litronic's Software Engineering Process has some way to go, it certainly was capable of responding to this particular debugging exercise. . Litronic is very responsive in addressing support concerns. . Litronic communicates problems and concerns very well with the Program Office. Rating: EXCELLENT
SCHEDULE:
. Contractor had some difficulty in meeting schedule for CI Library 1.52b. As a result, library release was delayed for several months. Rating: MARGINAL
COST . Litronic effectively controlled program costs. . No problems were evident in Litronic's billing procedures. . Status reporting is deficient. It is often late, not available, or not useful. If this problem is not corrected by the next evaluation period, cost will be further affected. Rating: GOOD
PERB Recommendations: Litronic, Inc.
Base Year Award Period
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 7 PAGES
2. AMENDMENT MODIFICATION NO. P00004
3. EFFECTIVE DATE: 23 OCT 1997
4. REQUISITION PURCHASE REQ. NO. 16-97-2093 A/3
5. PROJECT NO. (If applicable)
6. ISSUED BY: Maryland Procurement Office 9800 Savage Road Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) Litronic, Inc. ATTN: James Prohaska (703-729-1700)
43088 Winter Grove Drive Ashburn, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA###-##-####
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) Obligate $850,000.00 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority) FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible). A. The purpose of this modification is to:
1. Reduce the quantity of hours in section H.13 paragraph (b) OPTION I, 2. Exercise a portion of the option under section H.13 paragraph (b) OPTION I, in the FPAF amount of $850,000.00. 3. Add OPTION 3 for additional level of effort in Fiscal Year 1998 in the amount of $391,112.00. B. Accordingly, this contract is hereby modified as follows. (Continued on following page)
15.A NAME AND TITLE OF SIGNER (type or print) James S. Prohaska Director, Business Development
15B CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA ------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 03 Oct. 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) Gregory A. Fream
16B UNITED STATES OF AMERICA
BY /S/ GREGORY A. FREAM ------
16C. DATE SIGNED 03 Oct. 1997
MDA904-97-C-0424 P00004
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Page 2 of 7
PART I - Reduce the Level Of Effort under H.13 paragraph (b) OPTION I
OPTION I - FISCAL YEAR 1998 (1 OCTOBER 1997 - 30 SEPTEMBER 1998) is hereby restated as follows.
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
0001 The contractor shall furnish HRS 7864 XXX $738,500.00 the necessary materials, facilities, equipment, supplies, and services of skilled professional, technical and support personnel to fulfill the requirements set forth in the Statement of Work for Multi Level Information System Security Initiative Crypto
NOTE: The above stated amounts reflect the following revisions:
MDA904-97-C-0494 P00004 Page 3 of 7
MDA904-97-C-0424 P00004 Page 4 of 7
PART II -Exercise the option under H.13 paragraph (b) OPTION 1.
SECTION B - SUPPLIES/SERVICES AND PRICES
B.2 SUPPLIES/SERVICES - Fiscal Year 1998 (1 October 1997 - 30 September 1998) is hereby added to this contract as follows.
MDA904-97-C-0424 P00004 Page 5 of 7
SECTION F - DELIVERIES OR PERFORMANCE
F.3 352.211-90004 PERIOD OF PERFORMANCE (OCT 1990) - ALTERNATE III (OCT 1990) is hereby restated as follows.
The period of performance shall extend from the date of contract award to 30 September 1998, unless performance is sooner terminated under the terms of the contract. However, the Government reserves the right to exercise the option to renew the contract for up to one (1) year, as set forth elsewhere in this contract.
SECTION G - CONTRACT ADMINISTRATION DATA
G.1 ACCOUNTING AND APPROPRIATION DATA has the following fund cite added.
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
PR I69720930003
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.13 OPTION TO EXTEND THE TERM OF THE CONTRACT paragraph (b) OPTION 1 only, as restated in PART I of this modification, is hereby deleted in its entirety.
PART III - Add OPTION 3
H.13 OPTION TO EXTEND THE TERM OF THE CONTRACT paragraph (b) OPTION 3 is hereby added to this contract as follows.
MDA904-97-C-0424 P00004 Page 6 of 7
OPTION 3 - FISCAL YEAR 1998 (1 OCTOBER 1997 - 30 SEPTEMBER 1998).
MDA904-97-C-0424 P00004 Page 7 of 7
C. As a result of the foregoing, the total contract price is restated as follows..
D. Except as provided herein, all terms and conditions of this contract, as previously modified, remain unchanged and in full force and effect.
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE 1 OF 3 PAGES 2. AMENDMENT MODIFICATION NO. P00003 3. EFFECTIVE DATE: 15 SEP 1997 4. REQUISITION PURCHASE REQ. NO. 16-97-2093-0002 5. PROJECT NO. (If applicable) 6. ISSUED BY: Maryland Procurement Office 9800 Savage Rd., FANX III Ft. George G. Meade, MD 20755-6000 Attn: N141 (MLM) CODE H98230 7. ADMINISTERED BY (If other than Item 6) 8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) LITRONIC, INC. ATTN: JAMES PROHASKA (703-729-1700) 43088 WINTER GROVE DRIVE ASHBURN, VA 22011 (X) 9A. AMENDMENT OF SOLICITATION NO.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 9B. DATED (See Item 11) 10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA###-##-#### CODE FACILITY CODE X10B. DATED (See Item 13): 27 June 1997 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS | | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE PAGE 2 Obligate: $75,000.00 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. (X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
(X) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: FAR 43.103(a) D. OTHER (Specify type of modification and authority) E. IMPORTANT: Contractor | | is not, |X| is required to sign this document and return 3 copies to the issuing office. 14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible). A. The purpose of this modification is to:
1. The purpose of this modification is to provide additional funds to increase the level of effort and to change the subcontract number of page 2 of the basis contract from SB0920-96-602356 to SB0920-97-706672. 2. Accordingly, the following sections are hereby modified: SEE PAGE 2 Except as provided herein all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 15A NAME AND TITLE OF SIGNER (type or print) James S. Prohaska Director, Business Development 15B CONTRACTING OFFICER BY /S/ JAMES S. PROHASKA ------(Signature of personal authorized to sign this form) 15C. DATE SIGNED 12 SEP 1997 16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) GREGORY A. FREAM 16B UNITED STATES OF AMERICA BY /S/ GREGORY A. FREAM ------16C. DATE SIGNED 15 Sept. 199_
page 2 MDA904-97-C-0424/ P00003
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B.l SUPPLIES/SERVICES, CLINs 0001 and 0002 only, are revised as follows:
SECTION G - CONTRACT ADMINISTRATION DATA
G1 ACCOUNTING AND APPROPRIATION DATA is revised as follows:
page 3 MDA904-97-C-0424/ P00003
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $21.431.00 have been obligated under this contract towards future award fee determinations but are not available for the Contractor to bill against or incur costs against. Obligated award fee funds identified above will be released to the Contractor via subsequent modifications after the Government has rendered an award fee determination in accordance with the Award Fee Plan currently in force under this contract. Upon receipt of the aforementioned modifications, the Contractor is authorized to bill for the earned fee.
3. As a result of this modification, total contract value is increased as follows:
FROM BY TO FFP (LOE) $414,736.00 $75,000.00 $489,736.00
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4. Except as provided herein all other terms and conditions of the subject contract remain unchanged and in full force.
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE 1 OF 3 PAGES
2. AMENDMENT MODIFICATION NO. P00002
3. EFFECTIVE DATE: 04 SEP 1997
4. REQUISITION PURCHASE REQ. NO. 16-97-2093-0001
5. PROJECT NO. (If applicable)
6. ISSUED BY: Maryland Procurement Office 9800 Savage Rd., FANX III Ft. George G. Meade, Md 20755-6000 Attn: N141 (MLM) CODE H98230
7. ADMINISTERED BY (If other than Item 6)
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) LITRONIC, INC. ATTN: JAMES PROHASKA (703-729-1700) 43088 WINTER GROVE DRIVE ASHBURN, VA 22011
(X) 9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA###-##-#### CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE PAGE 2 Obligate: $45,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
(X) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: FAR 43.103(a) D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor | | is not, |X| is required to sign this document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible). 1. The purpose of this modification is to provide additional funds to increase the level of effort.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. Accordingly, the following sections are hereby modified: SEE PAGE 2 Except as provided herein all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15.A NAME AND TITLE OF SIGNER (type or print) James S. Prohaska Director, Business Development
15B CONTRACTING OFFICER BY /S/ JAMES S. PROHASKA ------(Signature of personal authorized to sign this form) 15C. DATE SIGNED 03 SEP 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) Gregory A. Fream 16B UNITED STATES OF AMERICA BY /S/ GREGORY A. FREAMA ------16C. DATE SIGNED 04 SEP 1997
page 2 MDA904-97-C-0424 / P00003
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B.1 SUPPLIES/SERVICES, CLINs 0001 and 0002 only arc revised as follows:
SECTION G - CONTRACT ADMINISTRATION DATA
G.1 ACCOUNTING AND APPROPRIATION DATA is revised as follows:
ACR: AA Obligate
977/780400.4500 574E51 999-2520 S18119 03200106 IX 0000 X22 120B PR: I6-97-2093-0001 From By To
Obligated for CLINs 0001, 0003 and 0004 $338,465.00 $40,909.00 $379,374.00 Obligated for Provisional Award Fee Payments $ 15,635.50 $ 2,045.50 $ 17,681.00 Obligated for Future Award Fee Payments $ 15,635.50 $ 2,045.50 $ 17,681.00 Total Amount Obligated $369,736.00 $45,000.00 $414,736.00
page 3 MDA904-97-C-0424 / P00002
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $17,681.00 have been obligated under this contract towards future award fee determinations but are not available for the Contractor to bill against or incur costs against. Obligated award fee funds identified above will be released to the Contractor via subsequent modifications after the Government has rendered an award fee determination in accordance with the Award Fee Plan currently in force under this contract. Upon receipt of the aforementioned modifications, the Contractor is authorized to bill for the earned fee.
3. As a result of this modification, total contract value is increased as follows:
FROM BY TO FFP (LOE) $369,736.00 $45,000.00 $414,736.00
4. Except as provided herein all other terms and conditions of the subject contract remain unchanged and in full force.
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE 1 OF 3 PAGES
2. AMENDMENT MODIFICATION NO. P00001
3. EFFECTIVE DATE: 03 JULY 1997
4. REQUISITION PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY: Maryland Procurement Office 9800 Savage Rd., FANX III Ft. George G. Meade, MD 20755-6000 Attn: N141 (MLM)
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) LITRONIC, INC. ATTN: JAMES PROHASKA (703-729-1700) 43088 WINTER GROVE DRIVE ASHBURN, VA 22011
(X) 9A. AMENDMENT OF SOLICITATION NO.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A Obligate: N/A
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. (X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
(X) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: FAR 43.103(a) D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor | | is not, |X| is required to sign this document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible). 1. The purpose of this modification is to incorporate the requirements of the attached Contract Security Classifications Specification DD Form 254, dated 23 June 1997. 2. Accordingly, the following sections are hereby modified: SEE PAGE 2
Except as provided herein all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A NAME AND TITLE OF SIGNER (type or print) James S. Prohaska Director, Business Development
15B CONTRACTING OFFICER BY /S/ JAMES S. PROHASKA ------(Signature of personal authorized to sign this form) 15C. DATE SIGNED 7/3/97
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) JAMES M. RUSSELL Contracting Officer 16B UNITED STATES OF AMERICA BY /S/ JAMES M. RUSSELL ------(Signature of Contracting Officer)
16C. DATE SIGNED 03 JUL 1997
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document page 2 MDA904-97-C-0424 / P00001
SECTION C - DESCRIPTION/SPECIFICATION/WORK STATEMENTS is revised to add:
C.4 Contract Security Classification Specification, DD Form 254, dated 23 June 1997.
SECTION D - PACKAGING AND MARKING is revised to add:
D.3 352.247-9004 PACKING AND SHIPPING (OCT 1993)
(a) Packing
(1) Material shall be packed by personnel duly cleared for the level of classification in question, to conceal it properly and to avoid suspicion as to its contents, and to reach destination in satisfactory condition. Internal markings or internal packaging will clearly indicate the classification. NO NOTATION TO INDICATE THE CLASSIFICATION SHALL APPEAR ON EXTERNAL MARKINGS.
(2) Documents shall be enclosed in two sealed envelopes or covers. Typewritten or printed matter in the contents shall be protected by a cover sheet or by folding inward to avoid direct contact with the inner envelope or cover. The inner cover shall be addressed, return addressed, sealed and marked with the security classification on front and back so that the marking will be easily seen when the outer cover is removed. Receipt for, if required, shall be enclosed identifying the addressor, addressee, and listing the contents by short title. The outer envelope or cover shall be of sufficient opaqueness and density as to prevent the classification marking of the inner cover from being visible and shall be addressed, return addressed, and carefully sealed with no markings or notations.
(b) Shipping
(1) Classified material shall be shipped in accordance with the Industrial Security Manual for Safeguarding Classified Material and Security Guidelines contained in DD Form 254.
(2) Unclassified material shall be shipped in accordance with the Contractor's best commercial practices to insure safe arrival at destination.
page 3 MDA904-97-C-0424 / P00001
SECTION H- SPECIAL CONTRACT REQUIREMENTS is revised to add:
H.16 352.290-9001 RETENTION OF INFORMATION (OCT 1993)
After completion of the contract, the Contractor shall not retain in his possession (unless specified by the contract document) any drawings, sketches, prints, reports, or other data developed under this contract without written approval of the Contracting Officer, or his duly authorized representative.
SECTION I - CONTRACT CLAUSES
1.5 REFERENCED CLAUSES - WHEN APPLICABLE is revised to add:
52.204-2 Security Requirements (AUG 1996)
3. As a result of this modification, total contract value is unchanged.
4. Except as provided herein all other terms and conditions of the subject contract remain unchanged and in full force.
DEPARTMENT OF DEFENSE CONTRACT SECURITY CLASSIFICATION SPECIFICATION (The requirements of the DoD industrial Security Manual apply to all security aspects of this effort)
1. CLEARANCE AND SAFEGUARDING a. FACILITY CLEARANCE REQUIRED: SECRET b. LEVEL OF SAFEGUARDING REQUIRED: SECRET
2. USERS SPECIFICATION IS FOR: (x and complete as applicable) X a. PRIME CONTRACT NUMBER: MDA904-97-C-0424
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document b. SUBCONTRACT NUMBER c. SOLITATION OR OTHER NUMBER DUE DATE (YYMMDD)
3. THIS SPECIFICATION IS: (X and complete as applicable) X a. ORIGINAL (Complete date in all cases) DATE (YYMMDD): 970623 b. REVISED (Supercedes all previous specs) / Revision No. / DATE (YYMMDD) c. FINAL (Complete Item 5 in all cases) / DATE
4. IS THIS A FOLLOW-ON CONTRACT? X YES; NO. IF YES, complete the --- following: Classified material received or generated under MDA904-95-C-4074 . ------(Preceding Contract Number) is transferred to this follow-on contract.
5. IS THIS A FINAL DD FORM 254: ______YES; X NO. If Yes, ------complete the following:
In response to the contractor's request date ______, retention of the identified classified material is authorized for the period of ______.
6. CONTRACTOR (Include Commercial and Government Entity (CAGE) Code) a. NAME, ADDRESS, AND ZIP CODE Litronic Industries 2950 Redhill Avenue Costa Mesa, CA 92626-7900 b. CAGE CODE: 4F972 c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code) Defensive Investigative Service Industrial Secuiryt Field Office, San Diego 16855 W. Bernardo Drive, Suite 150 San Diego, CA 92127-1619
7. SUBCONTRACTOR a. NAME, ADDRESS AND ZIP CODE: b. CAGE CODE: c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
8. ACTUAL PERFORMANCE a. LOCATION: b. CAGE CODE: c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
9. GENERAL IDENTIFICATION OF THIS PROCUREMENT Multi Level Information System Security Initiative Crypto Card System Analysis, and Library and Driver Architecture and Development.
10.THIS CONTRACT WILL REQUIRES ACCESS TO: YES NO a. COMMUNICATIONS SECURITY (COMSEC) INFORMATION: X b. RESTRICTED DATA X c. CRITICAL NUCLEAR WEAPON DESIGN INFORMATION X d. FORMERLY RESTRICTED DATA X e. INTELLIGENCE INFORMATION:
(1) Sensitive Compartmented Information (SCI) X (2) Non-SCI X f. SPECIAL ACCESS INFORMATION X g. NATO INFORMATION X h. FOREIGN GOVERNMENT INFORMATION X i. LIMITED DISSEMINATION INFORMATION X j. FOR OFFICIAL USE ONLY INFORMATION X k. OTHER (Specify
11.IN PERFORMING THIS CONTRACT, THE CONTRACTOR WILL: YES NO a. HAVE ACCESS TO CLASSIFIED INFORMATION ONLY AT ANOTHER CONTRACTOR'S FACILITY OR A GOVERNMENT ACTIVITY X b. RECEIVE CLASSIFIED DOCUMENTS ONLY X c. RECEIVE AND GENERATE CLASSIFIED MATERIAL X d. FABRICATE MODIFY, OR STORE CLASSIFIED HARDWARE X e. PERFORM SERVICES ONLY X f. HAVE ACCESS TO U.S. CLASSIFIED INFORMATION OUTSIDE THE U.S., PUERTO RICO, U.S. POSSESSIONS AND TRUST TERRITORIES X g. BE AUTHORIZED TO USE THE SERVICES OF DEFENSE TECHNICAL INFORMATION CENTER (DTIC) OR OTHER
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SECONDARY DISTRIBUTION CENTER X h. REQUIRE A COMSEC ACCOUNT X i. HAVE TEMPEST REQUIREMENTS X j. HAVE OPERATIONS SECURITY (OPSEC) REQUIREMENTS X k. BE AUTHORIZED TO USE THE DEFENSE COURIER SERVICE X l. OTHER (Specify)
12. PUBLIC RELEASE. Any information (classified or unclassified) pertaining to this contract shall not be released for public dissemination except as provided by the Industrial Security Manual or unless it has been approved for public release by appropriate U.S. Government authority. Proposed public releases shall be submitted for approval prior to release
X DIRECT ______Through (Specify)
Proposed public releases shall be submitted for approval prior to release direct to the Contracting Officer.
to the Directorate for Freedom of Information and Security Review, Office of the Assistant Secretary of Defense (Public Affairs)* for review.
* In the case of non DoD User Agencies, requests for disclosure shall be submitted to that agency.
13. SECURITY GUIDANCE. The security classification guidance needed for this classified effort is identified below. If any difficulty is encountered in applying this guidance or if any other contributing factor indicates a need for changes in this guidance, the contractor is authorized and encouraged to provide recommended changes; to challenge the guidance or the classification assigned to any information or material furnished or generated under this contract; and to submit any questions for interpretation of this guidance to the official identified below. Pending final decision, the information involved shall be handled and protected at the highest level of classification assigned or recommended. (Fill in appropriate for the classified effort. Attach, or forward under separate correspondence, any documents/guides/extracts referenced herein. Add additional pages as needed to provide complete guidance)
Additional security requirements begin on page 3.
Classified AIS Processing Will Be Involved? X YES ______NO ------
Annual Review of This Form Required ______NO X YES (date) One year ADAD ------
TYPED NAME, TITLE AND SIGNATURE OF PROGRAM/PROJECT MANAGER/COR OR OTHER DESIGNATED OFFICIAL
John Centafont Program Manager /s/ JOHN CENTAFONT
ACTIVITY NAME ADDRESS, ZIP CODE, TELEPHONE NUMBER AND OFFICE SYMBOL Director, National Security Agency 9800 Savage Road, Attn: X22 Fort George G. Meade, MD 20755-6733 (410) 859-4464
ONLY AUTHORIZED NSA CONTRACTING OFFICERS MAY SERVE AS CERTIFYING OFFICIALS FOR NSA SCI CONTRACTS AND SUBCONTRACTS.
14.ADDITIONAL SECURITY REQUIREMENTS. Requirements, in addition to ISM requirements, are established
Attachment A September 1996
SECURE TELECOMMUNICATION REQUIREMENTS
Secure telecommunications are required as this contract involves access to classified information or sensitive unclassified, Government or Government- derived information at the contractor facility. These requirements apply to the use of Government contractor telecommunications equipment over which classified
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document information or sensitive unclassified Government or Government-derived information is transmitted.
The following definitions apply:
Telecommunications: Preparation, transmission, communication, or related processing of information (writing, images, sounds or other data) by electrical electromagnetic, electromechanical, electro-optical or electronic means.
"Government Contractor" telecommunications: Voice and data telecommunications between or among Federal Government Agencies and their contractor/subcontractors. This includes management information processing systems and local data networks.
"Secured" means the application of communications security (COMSEC) equipments, devices or techniques to telecommunications or information processing systems over which classified information is transmitted.
"Protected" means the application of National Security Agency (NSA) approved protection equipment, devices or techniques to contractor telecommunications over which sensitive unclassified, Government or Government-derived information is transmitted.
"Sensitive unclassified, Government or Government derived information" is defined as any information, the loss, misuse or unauthorized access to, or modification of which might adversely affect the U.S. national interest, the conduct of DoD programs or the privacy of DoD personnel.
A COMSEC account is required for this contract. The NSA Central Office of Record has primary responsibility for auditing all COMSEC material held in this account. NSA will ensure that all Government contractor secure telecommunications facilities are operated in accordance with NSA requirements.
The contractor or subcontractor shall comply with DoD 5220.22-A, COMSEC Annex to the National Industrial Security Program Operating Manual, dated June 1995.
Equipment, devices, techniques and services required for securing or protecting contractor telecommunications will be acquired only from
for this contract. (If Yes, identify the pertinent contractual clauses in the contract document itself, or provide an appropriate statement which identifies the additional requirements. Provide a copy of the requirements to the cognizant security office. Use Item 13 if additional space is needed.) X YES NO____ -
15. INSPECTIONS. Elements of this contract are outside the inspection responsibility of the cognizant security office. (If YES , explain and identify specific areas or elements carved out and the activity responsible for inspections. Use item 13 if additional space is needed.) X YES ____ NO -----
16. CERTIFICATION AND SIGNATURE. Security requirements stated herein are complete and adequate for safeguarding the classified information to be released or generated under this classified effort. All questions shall be referred to the official named below. a. TYPED NAME OF CERTIFYING OFFICIAL James Russell b. TITLE Contracting Officer c. TELEPHONE (Include Area Code) (410) 684-7102 d. ADDRESS (Include Zip Code) Maryland Procurement Office 9800 Savage Road Fort George G. Meade, MD 20755-6000 e. SIGNATURE /S/ JAMES M. RUSSELL
17.REQUIRED FOR DISTRIBUTION X a. Contractor b. Subcontractor X c. Cognizant Security Office for Prime and Subcontractor d. U.S. Activity Responsible for Overseas Security Administration X e. Administrative Contracting Officer X f. Others As Necessary S412, DCS
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document sources listed in the NSA Information Systems Security Products and Services Catalog. Contractors shall comply with the STU-III Doctrine or other appropriate doctrine.
Keying materials required for the operation of secured and protected telecommunications systems will be furnished by the government. A Defense Courier Service account may be required for shipment of this material.
The prime contractor shall include requirements that conform with this DD254 in all subcontracts that require secured or protected equipment or services.
COMSEC incidents will be reported as follows: The contractor shall make an immediate telephonic notification to NSA of any incident or violation of COMSEC requirements. Notification will be made to the Office of COMSEC Insecurities on (410) 859-6811. Violations or possible compromises of COMSEC information should also be reported to S41 at (410) 859-6255 or the NSA Support Services Operations Center, Security Duty Officer at (301) 688-6911. A follow-up written report is required and shall be appropriately classified. Specific guidance as to proper classification will be provided by NSA. The report shall be submitted to the Contracting Officer, ATTN: V514 and the appropriate Defense Investigative Service (DIS) Cognizant Security Office. If accountable COMSEC material is involved, the Central Office of Record will also be provided a copy of the report.
Clarification and guidance for COMSEC requirements may be directed to the NSA Procedural and Material Control Branch at (301) 688-8110.
Attachment C September 1996
COLLATERAL (NON-SCI) CONTRACTS
Contractor employees may not carry any classified material on commercial aircraft unless approved by the Contracting Officer (CO) or his designated representative.
Classified material released under this contract does not become the property of the contractor and can be withdrawn by the National Security Agency (NSA) at anytime. Upon expiration of the contract, all classified materials released to the contractor and all other materials of any kind incorporating data from such classified materials will be returned to the NSA for final disposition. A certificate of destruction in lieu of the material will suffice when the material has been destroyed, either at the direction or under the supervision of the CO or his designee.
The contractor will not release classified material to any activity or individual of the contractor's organization not directly engaged in providing services under the contract, or to another contractor (including a subcontractor), government agency, private individual, or organization without the written consent of the CO. In the event that consent for such release is requested, the NSA will verify that the proposed recipient is appropriately cleared and has need-to-know.
Contractor and subcontractor personnel, as well as individuals who are consultants to the contractor or subcontractor, who have access to certain specified classified cryptographic information or materials, or to spaces where such classified cryptographic information or materials are produced, processed or stored are subject to requirements set forth in NSA/CSS Regulation 90-15. The Contractor Security Officer shall notify such personnel that they are subject to this requirement and shall provide the CO written confirmation that this notice was provided within 90 days of the effective date of this DD254.
Non-US citizens, to include immigrant aliens, are not authorized access to classified or to unclassified portions of this contract, proposal or study without the express written approval of NSA, Facilities Security Services (S41).
Contractors will maintain such records as will permit them to furnish on demand the names of individuals who have or have had access to classified material in the custody of the contractor.
Reproduction of any material released to the contractor must be approved by the Contracting Officer's Representative (COR).
The following marking applies to all classified elements of information generated under this contract:
DERIVED FROM: (Insert source document) DECLASSIFY ON: (Insert date)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document These documents apply to this contract:
Form G9006, "Classification Guidelines"
Director of Central Intelligence Directive 1/7, Security Controls on the Dissemination of Intelligence Information, effective 15 June 1996
Executive Order 12958, Classified National Security Information, dated October 1995
32 Code of Federal Regulations Part 2001, Implementation of Executive Order 12958, dated October 1995
DoD 5220.22-M, National Industrial Security Program Operating Manual, dated January 1995
DoD 5220.22-M-Sup 1, National Industrial Security Program Operating Manual Supplement, dated February 1995 Handling, Control and Accountability Requirements for NSA Sensitive Compartmented Information Contracts, dated 8 August 1994
NSA/CSS Classification Manual 123-2, dated 3 September 1991
These additional documents and paragraphs will be included on DD254 attachments for COMSEC collateral efforts:
DoD 5220.22-A, COMSEC Annex to the National Industrial Security Program Operating Manual, dated June 1995
NSA/CSS Regulation 90-15, Access to Classified Cryptographic Information, dated 16 March 1992
NCSC-6, National Policy Governing the Disclosure or Release of COMSEC to Foreign Governments or International Organizations, dated 16 January 1981
The contractor/subcontractor shall not divulge to any individual, company, organization, or other U.S. Government Department or Agency any information, either classified or unclassified, pertaining to the design or capabilities of COMSEC or communications protection systems or equipment being developed, produced, purchased, or provided as Government-furnished equipment under this and/or previous NSA contracts without the prior approval of the NSA.
Classified and COMSEC waste paper products should be destroyed daily. Classified and Controlled Cryptographic Item (CCI) hardware production scrap resulting from this contract shall be disposed of at intervals not to exceed six months.
Any external view or photographs of the end item hardware, provided all covers are in place, shall be unclassified, but the information shall be marked FOR OFFICIAL USE ONLY and released based on need-to-know. This information will not be published in periodicals or trade publications without prior approval of the CO.
Contractor/subcontractor-generated documents, both classified and unclassified, shall not be released to the Defense Technical Information Center (DTIC). They shall bear the statement "Not Releasable to the Defense Technical Information Center per DoD Directive 3200.12."
All material created from the pattern generation tape, whether intermediate or end product, shall be afforded the same protection as the pattern generation tape. The contractor or subcontractor shall ensure that an appropriate classification marking is affixed to each item in a manner that affords the item sufficient protection. Reticles, masters and submasters, working plates, blowbacks, and any other material created from the pattern generation tape or its derivative shall be marked with the appropriate classification and shall be controlled within the "in-process" accounting system as required by DoD 5220.22- A. Depending upon the process used for the fabrication or CCI products, reticles and other materials produced from the pattern generation tape or its derivatives shall be marked to reflect either a classification or a CCI designation, as appropriate. Such material shall also be controlled within the "in-process" accounting system.
All classified COMSEC documents (drawings, reports, test date, correspondence, etc.) originated by the contractor or subcontractor shall not be disclosed to foreign nationals and must be marked "US ONLY." The release of those documents that need to be shared with foreign governments must be approved by Director, NSA as specified in NCSC-6. Documents approved for release to a foreign government shall be marked "REL to US and (insert name of specified country) ONLY".
In addition to other applicable caveats, contractor or subcontractor-generated classified COMSEC documents, photographs, reports, etc., shall be marked with the following caveat: "COMSEC MATERIAL -- Access by Contractor Personnel Is
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Restricted to U.S. Citizens Holding Final Government Clearance."
Requirements for contractor handling of classified operational keying material marked CRYPTO are provided in DoD 5220.22-A.
DEPARTMENT OF DEFENSE CONTRACT SECURITY CLASSIFICATION SPECIFICATION (The requirements of the DoD industrial Security Manual apply to all security aspects of this effort)
1. CLEARANCE AND SAFEGUARDING a. FACILITY CLEARANCE REQUIRED: SECRET b. LEVEL OF SAFEGUARDING REQUIRED: SECRET
2. USERS SPECIFICATION IS FOR: (x and complete as applicable) X a. PRIME CONTRACT NUMBER: MDA904-97-C-0424 b. SUBCONTRACT NUMBER c. SOLITATION OR OTHER NUMBER Due Date (YYMMDD)
3. THIS SPECIFICATION IS: (x and complete as applicable) X a. ORIGINAL (Complete date in all cases) DATE (YYMMDD): 970623 b. REVISED (Supercedes all previous specs) / Revision No. / DATE (YYMMDD) c. FINAL (Complete Item 5 in all cases) / DATE
4. IS THIS A FOLLOW-ON CONTRACT? X YES; NO. IF YES, complete the --- following: Classified material received or generated under MDA904-95-C-4074 ------. (Preceding Contract Number) is transferred to this follow-on contract.
5. IS THIS A FINAL DD FORM 254: ______YES; X NO. If Yes, ------complete the following:
In response to the contractor's request date ______, retention of the identified classified material is authorized for the period of ______.
6. CONTRACTOR (Include Commercial and Government Entity (CAGE) Code) a. NAME, ADDRESS, AND ZIP CODE Litronic Industries 2950 Redhill Avenue Costa Mesa, CA 92626-7900 b. CAGE CODE: 4F972 c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code) Defensive Investigative Service Industrial Secuiryt Field Office, San Diego 16855 W. Bernardo Drive, Suite 150 San Diego, CA 92127-1619
7. SUBCONTRACTOR a. NAME, ADDRESS AND ZIP CODE: b. CAGE CODE: c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
8. ACTUAL PERFORMANCE a. LOCATION: b. CAGE CODE: c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
9. GENERAL IDENTIFICATION OF THIS PROCUREMENT Multi Level Information System Security Initiative Crypto Card System Analysis, and Library and Driver Architecture and Development.
12. PUBLIC RELEASE. Any information (classified or unclassified) pertaining to this contract shall not be released for public dissemination except as provided by the Industrial Security Manual or unless it has been approved for public release by appropriate U.S. Government authority. Proposed public releases shall be submitted for approval prior to release.
X DIRECT ______Through (Specify) -----
Proposed public releases shall be submitted for approval prior to release direct to the Contracting Officer.
to the Directorate for Freedom of Information and Security Review, Office of the Assistant Secretary of Defense (Public Affairs)* for review. * In the case of nonDoD User Agencies, requests for disclosure shall be submitted to that agency.
13. SECURITY GUIDANCE. The security classification guidance needed for this classified effort is identified below. If any difficulty is encountered in applying this guidance or if any other contributing factor indicates a need for changes in this guidance, the contractor is authorized and encouraged to provide recommended changes; to challenge the guidance or the classification assigned to any information or material furnished or generated under this contract; and to submit any questions for interpretation of this guidance to the official identified below. Pending final decision, the information involved shall be handled and protected at the highest level of classification assigned or recommended. (Fill in appropriate for the classified effort. Attach, or forward under separate correspondence, any documents/guides/extracts referenced herein. Add additional pages as needed to provide complete guidance)
Additional security requirements begin on page 3.
Classified AIS Processing Will Be Involved? X YES ______NO ------
Annual Review of This Form Required ______NO X YES (date) One year ADAD ------
TYPED NAME, TITLE AND SIGNATURE OF PROGRAM/PROJECT MANAGER/COR OR OTHER DESIGNATED OFFICIAL John Centafont Program Manager /S/ JOHN CENTAFONT
ACTIVITY NAME ADDRESS, ZIP CODE, TELEPHONE NUMBER AND OFFICE SYMBOL Director, National Security Agency 9800 Savage Road, Attn: X22 Fort George G. Meade, MD 20755-6733 (410) 859-4464
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ONLY AUTHORIZED NSA CONTRACTING OFFICERS MAY SERVE AS CERTIFYING OFFICIALS FOR NSA SCI CONTRACTS AND SUBCONTRACTS.
14.ADDITIONAL SECURITY REQUIREMENTS. Requirements, in addition to ISM requirements, are established for this contract. (If Yes, identify the pertinent contractual clauses in the contract document itself, or provide an appropriate statement which identifies the additional requirements. Item 13 if additional space is needed.) Provide a copy of the requirements to the cognizant security office. Use YES NO X------
15. INSPECTIONS. Elements of this contract are outside the inspection responsibility of the cognizant security office. (IF Yes, explain and identify specific areas or elements carved out and the activity responsible for inspections. Use item 13 if additional space is needed. YES X NO
16. CERTIFICATION AND SIGNATURE. Security requirements stated herein are complete and adequate for safeguarding the classified information to be released or generated under this classified effort. All questions shall be referred to the official named below. a. TYPED NAME OF CERTIFYING OFFICIAL James Russell b. TITLE Contracting Officer c. TELEPHONE (Include Area Code) (410) 684-7102 d. ADDRESS (Include Zip Code) Maryland Procurement Office 9800 Savage Road Fort George G. Meade, MD 20755-6000 e. SIGNATURE /S/ JAMES M. RUSSELL
17. REQUIRED FOR DISTRIBUTION X a. Contractor b. Subcontractor X c. Cognizant Security Office for Prime and Subcontractor d. U.S. Activity Responsible for Overseas Security Administration X e. Administrative Contracting Officer X f. Others As Necessary S412, DCS
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE OF PAGES 2. AMENDMENT MODIFICATION NO. 01 3. EFFECTIVE DATE: 26 AUG 97 4. REQUISITION PURCHASE REQ. NO. 5. PROJECT NO. (If applicable) 6. ISSUED BY: U.S. SMALL BUSINESS ADMINISTRATION ATTN: MED 200 W. SANTA ANA BLVD., STE. #700 SANTA ANA, CA 92701 ATTN: JOE DWORNICZAK 714-550-7420 CODE 7. ADMINISTERED BY (If other than Item 6) CODE 8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) LITRONIC INDUSTRIES ATTN: JAMES PROHASKA 43088 WINTER GROVE DRIVE ASHBURN, VA 22011 (X) 9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (See Item 11) 10A. MODIFICATION OF CONTRACT/ORDER NO.: SB0920-96-602356 CODE FACILITY CODE X10B. DATED (See Item 13): 27 JUN 97 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS | | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. (X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
(X) B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: D. OTHER (Specify type of modification and authority) E. IMPORTANT: Contractor |X| is not, |__| is required to sign this document and return ______copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible). 1. Reference contract MDA904-97-C-0424, with NSA. 2. Effective immediate, the subcontract #SB0920-96-602356 is changed to the new number SBO920-97-706672. 3. The SBA office which issues/administrates the subcontract is as in block 6 above. Except as provided herein all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 15A NAME AND TITLE OF SIGNER (type or print) 15B CONTRACTING OFFICER (Signature of personal authorized to sign this form) 15C. DATE SIGNED 16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) Joseph Dworniczak Contracting Officer 16B UNITED STATES OF AMERICA BY /S/ JOSEPH DWORNICZAK ------(Signature of Contracting Officer) 16C. DATE SIGNED 26 Aug 97
MDA904-97-C-0424 P00007 Page 3 of 11
0002 Award Fee Pool, to be For the Period $10,709.00 determined in accordance with the Award Fee Determination Plan for Multi Level Information System Security Initiative Crypto Card System Analysis and Library and Driver NOTE: The above stated amounts reflect the following revisions:
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE 1 OF 11 PAGES 2. AMENDMENT MODIFICATION NO. P00007 3. EFFECTIVE DATE: 28 MAY 1998 4. REQUISITION PURCHASE REQ. NO. 16-97-2093 A/4 5. PROJECT NO. (If applicable) 6. ISSUED BY: Maryland Procurement Office 9800 Savage Road Ft. Meade, Md 20755-6000 Attn: N141 (M. Lynn Miller) (410) 859-4071 CODE H98230 7. ADMINISTERED BY (If other than Item 6) 8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) LITRONIC, INC. ATTN: James Prohaska (703-950-9700) 43088 Winter Grove Drive Ashburn, VA 22011 (X) 9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (See Item 11) 10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA###-##-#### CODE FACILITY CODE X10B. DATED (See Item 13): 27 June 1997 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS | | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) Obligate $205,000.000 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. (X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: (X) D. OTHER (Specify type of modification and authority) FAR 43.103 (a) Bilateral Modification. E. IMPORTANT: Contractor | | is not, |X| is required to sign this document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document including solicitation/contract subject matter where feasible). 1. Part I-Revise section H.13 paragraph (b) OPTION 3; 2. Part II-Exercise the revised OPTION 3 in the FPAF amount of $205,000.00, which is hereby added to Section B.2; and 3. Part II-Incorporate government furnished property. Except as provided herein all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 15A NAME AND TITLE OF SIGNER (type or print) James S. Prohaska Director, Business Development 15B CONTRACTING OFFICER BY /S/ JAMES S. PROHASKA ------(Signature of personal authorized to sign this form) 15C. DATE SIGNED 5/27/98 16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) MARGARET M. QUASNY Contracting Officer 16B UNITED STATES OF AMERICA BY Margaret M. Quasny (Signature of Contracting Officer) 16C. DATE SIGNED 5/28/98
MDA904-97-C-0424 P00008 Page 2 of 4
SECTION B - SUPPLIES/SERVICES AND PRICES
B.2 SUPPLIES/SERVICES (Fiscal Year 1998 - 1 October 1997 - 30 September 1998) is restated as follows:
UNIT CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
0001 The Contractor shall furnish the HRS 9,004 XXX $845,591.00
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ACR: AB
MDA904-97-C-0424 P00008 Page 4 of 4
C. As a result of the foregoing, the total contract price is restated as follows:
D. Except as provided herein, all terms and conditions of this contract, as previously modified, remain unchanged and in full force and effect.
LITRONIC INDUSTRIES PURCHASE ORDER WORKSHEET
PO NUMBER: MDA904-97-C-0424, P00007 Customer Number: Date: May 28, 1998 Customer: NSA Maryland Procurement Office Address: 9800 Savage Road FANX III Fort George G. Meade, MD 20755-6000 Buyer: M. Quansy
REMARKS SECTION
1. ADDITIONAL FUNDING FOR FY98. TOTAL CONTRACT AMOUNT IS $1,055,000.00
2. PROVIDE COPY TO BOB GRAY.
Item Part Number Quantity Unit Price Due Date Total
0001 See Page 4 of Contract for 205,000.00 N/A $205,000.0-0 Appropriate Labor Categories
Total Price: $ 205,000.00 Taxable: NO Initiated by: Prohaska Rep: Prohaska
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE 1 OF 3 PAGES 2. AMENDMENT MODIFICATION NO. P00006 3. EFFECTIVE DATE: 07 NOV 1997 4. REQUISITION PURCHASE REQ. NO. N/A 5. PROJECT NO. (If applicable) 6. ISSUED BY: Maryland Procurement Office 9800 Savage Road Ft. Meade, Md 20755-6000 Attn: N141 (M. Lynn Miller) (410) 859-4071 CODE H98230 7. ADMINISTERED BY (If other than Item 6) 8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) LITRONIC, INC. ATTN: JAMES PROHASKA (703-729-1700) 43088 WINTER GROVE DRIVE ASHBURN, VA 22011 (X) 9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (See Item 11) 10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424 CODE FACILITY CODE X10B. DATED (See Item 13): 27 June 1997 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS | | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. (X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
(X) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: 43.103(a) Bilateral Modification. D. OTHER (Specify type of modification and authority) E. IMPORTANT: Contractor | | is not, |X| is required to sign this document and return 3 copies to the issuing office. 14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible).
1. The purpose of this modification is to decrease the Not-to-Exceed amounts for CLIN 0003, Travel and CLIN 0004, Other Direct Costs, and increase the number of labor hours for CLIN 0001 in Section B.1 of this contract.
2. Accordingly, this contract is hereby modified as follows. (Continued on following page) Except as provided herein all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 15A NAME AND TITLE OF SIGNER (type or print) James S. Prohaska Director, Business Development 15B CONTRACTING OFFICER BY /S/ JAMES S. PROHASKA ------(Signature of personal authorized to sign this form) 15C. DATE SIGNED 07 NOV 1997 16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) MARGARET M. QUASNY Contracting Officer 16B UNITED STATES OF AMERICA BY /S/ Margaret M. Quasny ------(Signature of Contracting Officer) 16C. DATE SIGNED 11/7/97
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE 1 OF 4 PAGES 2. AMENDMENT MODIFICATION NO. P00008 3. EFFECTIVE DATE: 07 JUN 1998 4. REQUISITION PURCHASE REQ. NO. 16-97-2093-0005 5. PROJECT NO. (If applicable) 6. ISSUED BY: Maryland Procurement Office 9800 Savage Road Ft. Meade, Md 20755-6000 Attn: N141 (M. Lynn Miller) (410) 859-4071 CODE H98230 7. ADMINISTERED BY (If other than Item 6) CODE 8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) DUNS: 050761998 Litronic, Inc. ATTN: James Prohaska (703-905-9700) 2950 Redhill Avenue Costa Mesa, CA 92626 (X) 9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (See Item 11) 10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424 CODE FACILITY CODE X10B. DATED (See Item 13): 27 June 1997 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS | | The above numbered solicitations is amended as set forth in Item 14. The hour and date specified for receipt of Offers | | is extended, | | is not extended. Offer's must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) By completing Items 8 and 15, and returning ______copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) by separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you design to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1 Obligate: $184,000.00 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. (X) A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: (X) D. OTHER (Specify type of modification and authority) FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this document and return 3 copies to the issuing office. 14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible). A. The purpose of this modification is to increase CLIN 0004, Other Direct Costs/Materials, in Section B.2.
B. Accordingly, this contract is hereby modified as follows. (Continued on following page) Except as provided herein all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 15A NAME AND TITLE OF SIGNER (type or print) James S. Prohaska Director, Business Development 15B CONTRACTING OFFICER BY /S/ JAMES S. PROHASKA ------(Signature of personal authorized to sign this form) 15C. DATE SIGNED 03 Oct. 1997 16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print) MARGARET M. QUASNY Contracting Officer 16B UNITED STATES OF AMERICA BY /S/ Margaret M. Quasny ------(Signature of Contracting Officer) 16C. DATE SIGNED 6/8/98
MDA904-97-C-0424 P00008 Page 2 of 11
PART 1 - Reduce the Level Of Effort under H.13 paragraph (b) OPTION 3
OPTION 3 - FISCAL YEAR 1998 (1 OCTOBER 1997- 30 SEPTEMBER 1998) is hereby restated as follows:
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
NOTE: The above stated amounts reflect the following revisions:
MDA904-97-C-0424 P00007 Page 4 of 11
PART II - Exercise the option under H.13 paragraph (b) OPTION 3
SECTION B - SUPPLIES/SERVICES AND PRICES
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document amounts. ACR: AB
MDA904-97-C-0424 P00007 Page 5 of 11
Funds in the amount of $42,279.50 have been obligated under this contract towards future award fee determinations but are not available for the Contractor to bill against or incur costs against. Obligated award fee funds identified above will be
released to the Contractor via subsequent modifications after the Government has rendered an award fee determination in accordance with the Award Fee Plan currently in force under this contract. Upon receipt of the aforementioned modifications, the Contractor is authorized to bill for the earned fee.
G.13 NOTICE - CONTRACT ADMINISTRATION FUNCTION (OCT 1993) is added:
(a) The Procuring Contracting Officer (PCO) will retain all administrative functions under this contract except for those assigned to the cognizant Defense Contract Management Command (DCMC) component, in accordance with Part 42 of the FAR, Part 242 of the DoD FAR Supplement and the PCO's letter
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document dated 27 May 1998.
(b) The Contractor's 5-position CAGE Code is 4F972.
(c) The following administration functions are hereby delegated to the cognizant DCMC component (see FAR/DFARS references below):
(1) 42.302(a)(1). Review the Contractor's compensation structure.
(2) 42.302(a)(2). Review the Contractor's insurance plans.
(3) 42.302(a)(5). Negotiate forward pricing rate agreements (see FAR 15.809).
(4) 42.302(a)(9). Establish final indirect cost rates and billing rates for those contractors meeting the criteria for contracting officer determination in FAR Subpart 42.7.
(5) 42.302(a)(11). In connection with Cost Accounting Standards (see FAR Part 30)
(i) Determine the accuracy of the Contractor's disclosure statements;
(ii) Determine whether disclosure statements are in compliance with Cost Accounting Standards and FAR Part 31;
(iii) Determine the Contractor's compliance with Cost Accounting Standards and disclosure statements, if applicable; and
(iv) Negotiate price adjustments and execute supplemental agreements under the Cost Accounting Standards clause at FAR 52.230-3, 52.230-4, and 52.230-5. Note: the ACO will negotiate the amount of the adjustment, but the MPO CO will issue the modification to the contract.
(6) 42.302(a)(16). Monitor the Contractor's financial condition and advise the contracting officer when it jeopardizes contract performance.
(7) 42.302(a)(19). Ensure processing and execution of duty-free certificates.
(8) 42.302(a)(25). Process and execute novation and change of name agreements under FAR Subpart 42.12.
(9) 42.302(a)(26). Perform property administration and and plant clearance (see FAR Part 45).
(10) 42.302(a)(33). Advise and assist contractors regarding their priorities and allocations responsibilities and assist contracting offices in processing for special assistance and for priority ratings for privately owned capital equipment.
(11) 42.302(a)(34). Monitor Contractor industrial relations matters under the contract; apprise the contracting officer of actual or potential labor disputes; and coordinate the removal of urgently required material from the strikebound contractor's plant upon instruction from, and authorization of, the contracting officer.
(12) 42.302(a)(36). Review the adequacy of the Contractor's traffic operations.
(13) 42.302(a)(37). Review and evaluate preservation, packaging, and packing.
(14) 42.302(a)(42). Review and evaluate for technical adequacy the Contractor's logistics support, maintenance, and modification programs.
(15) 42.302(a)(48). Evaluate and monitor the Contractor's procedures for complying with procedures regarding restrictive markings on data.
(16) 42.302(a)(49). Monitor the Contractor's value engineering program.
(17) 42.302(a)(50). Review, approve or disapprove, and maintain surveillance of the Contractor's purchasing system (see FAR Part 44).
(18) 42.302(a)(52). Review, evaluate, and approve plant or division-wide small and small disadvantaged business master subcontracting plans.
(19) 42.302(a)(53). Obtain the Contractor's currently approved company or division-wide plans for small business and small disadvantaged business subcontracting for its commercial products, or, if there is no currently approved plan, assist the contracting officer in evaluating the plans for those products.
(20) 42.302(a)(54). Assist the contracting officer, upon request, in evaluating an offeror's proposed small business and small disadvantaged business subcontracting plans, including documentation of compliance with similar
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document plans under prior contracts.
(21) 42.302(a)(55). By periodic surveillance, ensure the Contractor's compliance with small business and small disadvantaged business subcontracting plans and any labor surplus area contractual requirements; maintain documentation of the Contractor's performance under and compliance with these plans and requirements; and provide advice and assistance to the firms involved, as appropriate.
(22) 42.302(a)(58). Ensure timely submission of required reports.
(23) 42.302(a)(66). Determine that the Contractor has a drug-free workplace program and drug-free awareness program (see FAR Subpart 23.5).
(24) 242.302(a)(4). Also, review and evaluate:
(A) Contractor estimating system (see FAR 15.811); and
(B) Contractor material management and accounting system under DFARS Subpart 242.72.
(25) 242.302(a)(8). Monitor the Contractor's costs under DFARS Subpart 242.70.
(26) 242.302(a)(9). For additional contract administration functions related to IR&D/B&P projects performed by major contractors, see 242.771-3(a).
(c) The following contract administration functions (marked (X) when applicable) are hereby delegated to the cognizant DCMC component (see FAR/DFARS references below):
( ) (1) 42.302(a)(3). Conduct post-award orientation conferences.
( ) (2) 42.302(a)(4). Review and evaluate contractor's proposals under FAR Subpart 25.8 and, when negotiation will be accomplished by the contracting officer, furnish comments and recommendations to that officer.
( ) (3) 42.302(a)(6). Negotiate advance agreements applicable to treatment of costs under contracts currently assigned for administration (see FAR Subpart 31.109).
( ) (4) 42.302(a)(12). Review and approve or disapprove the Contractor's requests for payments under the progress payments clause.
( ) (5) 42.302(a)(13). Make payments on assigned contracts when prescribed in agency acquisition regulations (see FAR Subpart 42.205).
( ) (6) 42.302(a)(15). Ensure timely notification by the Contractor of any anticipated overrun or underrun of the estimated cost under cost-reimbursement contracts.
( ) (7) 42.302(a)(17). Analyze quarterly limitation on payments statements and recover overpayments from the Contractor. Note: use with 42.302(a)(12) above.
( ) (8) 42.302(a)(20). For classified contracts, administer those portions of the applicable industrial security program designated as ACO responsibilities (see FAR Subpart 4.4).
( ) (9) 42.302(a)(28). Perform necessary screening, redistribution, and disposal of contractor inventory.
( ) (10) 42.302(a)(29). Issue contract modifications requiring the Contractor to provide packing, crating, and handling services on excess Government property. When the ACO determines it to be in the Government's interests, the services may be secured from a contractor other than the contractor in possession of the property.
( ) (11) 42.302(a)(31). Perform production support, surveillance, and status reporting, including timely reporting of potential and actual slippages in contract delivery schedules.
( ) (12) 42.302(a)(32). Perform pre-award surveys (see FAR Subpart 9.1).
( ) (13) 42.302(a)(38). Ensure Contractor compliance with contractual quality assurance requirements (see FAR Part 46).
( ) (14) 42.302(a)(39). Ensure Contractor compliance with contractual safety requirements. Note: see DFARS 223.370 for safety requirements on contracts for ammunition and explosives.
( ) (15) 42.302(a)(40). Perform engineering surveillance to assess compliance with contractual terms for schedule, cost, and technical performance in the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document areas of design, development, and production.
( ) (16) 42.302(a)(41). Evaluate for adequacy and perform surveillance of Contractor efforts and management systems that relate to design, development, production, engineering changes, subcontractors, tests, management of engineering resources, reliability and maintainability, data control systems, configuration management, and independent research and development.
( ) (17) 42.302(a)(43). Report to the contracting office any inadequacies noted in specifications.
( ) (18) 42.302(a)(44). Perform engineering analyses of Contractor cost proposals.
( ) (19) 42.302(a)(45). Review and analyze Contractor proposed engineering and design studies and submit comments and recommendations to the contracting office, as required.
( ) (20) 42.302(a)(46). Review engineering change proposals for proper classification and, when required, for need, technical adequacy of design, productibility, and impact on quality, reliability, schedule, and cost; submit comments to the contracting office.
( ) (21) 42.302(a)(47). Assist in evaluating and make recommendations for acceptance or rejection of waivers and deviations.
( ) (22) 42.302(a)(51). Consent to the placement of subcontracts.
( ) (23) 42.302(a)(57). Assign and perform supporting contract administration.
( ) (24) 42.302(a)(59). Issue administrative changes, correcting errors or omissions in typing, Contractor address, facility or activity code, remittance address, computations which do not require additional contract funds, and other such changes (see FAR Subpart 43.101).
( ) (25) 42.302(a)(60). Cause release of shipments from Contractor's plants according to the shipping instructions. When applicable, the order of assigned priority shall be followed; shipments within the same priority shall be determined by date of the instructions.
( ) (26) 42.302(a)(61). Obtain Contractor proposals for any contract price adjustments resulting from amended shipping instructions. ACOs shall review all amended shipping instructions on a periodic, consolidated basis to assure that adjustments are timely made. Except when the ACO has settlement authority, the ACO shall forward the proposal to the contracting officer for contract modification. The ACO shall not delay shipments pending completion and formalization of negotiations of revised shipping instructions.
( ) (27) 42.302(a)(65). Accomplish administrative closeout procedures (see FAR Subpart 4.804-5).
( ) (28) 242.302(a)(19). Also negotiate and issue contract modifications reducing contract prices in connection with the provisions of paragraph (b) of the clause at FAR 52.225-10, Duty-Free Entry, and paragraph (c) of the clause at 252.225-7009, Duty-Free Entry--Qualifying Country End Products and Supplies.
( ) (29) 242.302(a)(33). Also perform industrial readiness and mobilization productions planning field surveys and negotiate schedules.
( ) (30) 242.302(a)(41). In contract, with cost schedule control systems requirements (see DFARS Subpart 234.005-70;
(A) Perform postaward surveillance of Contractor progress in demonstrating that its cost schedule control systems meet the cost schedule control systems criteria;
(B) Provide assistance in the review and acceptance of the Contractor's cost schedule control systems; and
(C) After acceptance of the systems, perform surveillance to monitor their continuing acceptable operation.
H.17 352.245-9001 GOVERNMENT FURNISHED PROPERTY (APR 1989) is added:
(a) The Government shall deliver to the Contractor, F.O.B. carrier's equipment, wharf, or freight station Ashburn, VA, where the work will be performed, the following property to be used for this requirement:
Description Qty. Value To be delivered to Contractor
GTC FORTEZZA Crypto Card 2 $140.00 In Place
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) The Contractor shall inspect the property within thirty (30) days of its receipt. Damaged or defective property will be promptly reported to the Contracting Officer after having a confirming inspection thereof made by the Government Representative. The Contractor will also request a confirming inspection by the carrier's representative where he considers the damage to be attributable in some degree to the carrier.
(c) A representative of the Contracting Officer may be present to inspect the condition of the property prior to packaging thereof for return to the Government. The Contractor will notify the designated property administrator prior to the packaging of the property for return so that personnel may be assigned for these examinations.
(d) In fulfillment of the requirements of the contract clause entitled "Government Property," reporting of Government Property inventory shall be submitted in accordance with FAR 45.508.
(e) Under no circumstances shall government property be accepted by the contractor without a contracting officer's signature on the shipping document.
(f) All inquiries with regard to the above property should be directed to the designated property administrator.
H.18. DESIGNATION OF PROPERTY ADMINISTRATOR - RECORDS OF GOVERNMENT PROPERTY (OCT 1993) is added:
(a) The cognizant Defense Contract Management Command (DCMC) component is designated to administer the maintenance by the Contractor of the official Government Property Records for all Government property.
(b) The Contractor will sign one (1) copy of the shipping or inspection document acknowledging receipt of property and forward same to the designated property administrator. (End of clause)
SECTION I - CONTRACT CLAUSES
1.1 REFERENCED CLAUSES. The following contract clause(s) pertinent to this section are hereby incorporated by reference:
CLAUSE NO TITLE FAR CLAUSES 52.245-4 Government-Furnished Property (Short Form) (APR 1984)
C. As a result of the foregoing, the total contract price is restated as follows.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.14
SUBLEASE
NOTE: This Sublease document is being used as a Sub-sublease document. Therefore, the terms "sublease", "sublessor" and "sublessee" will often be used as "sub-sublease", "sub-sublessor" and sub-sublessee", respectively.
1. PARTIES.
This Sublease, dated October 20, 1997, is made between E.I. du Pont de Nemours and Company, a Delaware corporation (Sublessor"), and Lintronic Industries, a California corporation ("Sublessee").
2. MASTER LEASE.
Sublessor is the Sub-lessee under a written lease dated February 21, 1991, wherein Koll Tower Four Associates, a California limited partnership ("Lessor") leased to Lessee Hadson Power Systems, a Delaware corporation, the real property located in the City of Irvine, County of Orange, State of California, described as portions of that certain 16-story office building located at 2030 Main Street, Irvine, California, as identified in the Master Lease as the "Premises" ("Master Premises"). Said lease has been amended by the following amendments that certain Sublease dated April 7, 1995 by and between Hadson Power Systems ("Hadson")*, a Delaware corporation and E.I. du Pont de Nemours and Company (as existing "Sublessor"); said lease and amendments are herein collectively referred to as the "Master Lease" and are attached hereto as Exhibit "A".
*Hadson Systems is now LG & E Energy Systems, Inc., a Kentucky Corporation
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set forth in this Sublease the following portions of the Master Premises ("Premises"): approximately 11.912 rentable square feet as identified as Exhibit One to the sublease and further identified as 2030 SE Main Street, Suite 1250, Irvine, California.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents that the Master Lease has not been amended or modified except as expressly set forth herein, that Sublessor is not now, and as of the commencement of the Term hereof will not be, in default or breach of any of the provisions of the Master Lease, and that Sublessor has no knowledge of any claim by Lessor that Sublessor is in default or breach of any of the provisions of the Master Lease.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 5. TERM.
The Term of this Sublease shall commence on November 1, 1997 ("Commencement Date"), or when Lessor consents to this Sublease (if such consent is required under the Master Lease), whichever shall last occur, and end on September 17, 2001 ("Termination Date"), unless otherwise sooner terminated in accordance with the provisions of this Sublease. In the event the Term commences on a date other than the Commencement Date, Sublessor and Sublessee shall execute a memorandum setting forth the actual date of the commencement of the Term.
Possession of the Premises ("Possession") shall be delivered to Sublessee on the commencement of the Term. If for any reason Sublessor does not deliver Possession to Sublessee on the commencement of the Term, Sublessor shall not be subject to any liability for such failure, the Termination Date shall not be extended by the delay, and the validity of this Sublease shall not be impaired, but rent shall abate until delivery of Possession. Notwithstanding the foregoing, if Sublessor has not delivered Possession to Sublessee within thirty (30) days after the Commencement Date, then at any time thereafter and before delivery of Possession, sublessee may give written notice to Sublessor of Sublessee's intention to cancel this Sublease. Said notice shall set forth an effective date for such cancellation which shall be at least ten (10) days after delivery of said notice to Sublessor. If Sublessor delivers Possession to Sublessee on or before such effective date, this Sublease shall remain in full force and effect. If Sublessor fails to deliver Possession to Sublessee on or before such effective date, this Sublease shall be cancelled, in which case all consideration previously paid by Sublessee to Sublessor on account of this Sublease shall be returned to Sublessee, this Sublease shall thereafter be of no further force and effect, and Sublessor shall have no further liability to Sublessee on account of such delay or cancellation. If Sublessor permits Sublessee to take Possession prior to the commencement of the Term, such early Possession shall not advance the Termination Date and shall be subject to the provisions of this Sublease, including without limitation the payment of rent.
6. RENT.
6.1. Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without deduction, setoff, notice, or demand, at E.I. du Pont de Nemours, Attn: Corporate Real Estate, 1007 Market Street, D12048A, Wilmington, DE 19898, or at such other place as Sublessor shall designate from time to time by notice to Sublessee, the sum of See Addendum One Dollars ($______) per month, in advance on the first day of each month of the Term. Sublessee shall pay to Sublessor upon execution of this Sublease the sum of Twenty Thousand Two Hundred Fifty and 40/100ths Dollars ($20,250.40) as rent for the first month. If the Term begins or ends on a day other than the first or last day of a month, the rent for the partial months shall be prorated on a per diem basis. Additional provisions: See attached Addendum One
6.2. Operating Costs. If the Master Lease requires Sublessor to pay to Lessor
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document all or portion of the expenses of operating the building and/or project of which the Premises are a part ("Operating Costs"), including but not limited to taxes, utilities, or insurance, then Sublessee shall pay to Sublessor as additional rent seventy and 24/100ths percent (70.24%) of the amounts payable by Sublessor for Operating Costs incurred during the Term. Such [illegible text] shall be payable as and [illegible text] Operating Costs are payable by Sublessor to Lessor if the Master Lease provides for the payment by Sublessor of Operating Costs on the basis of an estimate thereof, then as and when adjustments when estimated and actual Operating Costs are made under the Master Lease, the obligations of Sublessor and Sublessee hereunder shall be adjusted in a like manner, and if any such adjustment shall occur after the expiration of
2
earlier termination of the term, then the obligations of Sublessor and Sublessee under this Section 6.2 shall survive such expiration or termination. Sublessor shall, upon request by Sublessee, furnish Sublessee with copies of all statements submitted by Lessor of actual or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the sum of Twenty Thousand Two Hundred Fifty and 40/100ths Dollars ($20,250.40) as security for Sublessee's faithful performance of Sublessee's obligations hereunder ("Security Deposit"). If Sublessee fails to pay rent or other charges when due under this Sublease, or fails to perform any of its other obligations hereunder, Sublessor may use or apply all or any portion of the Security Deposit for the payment of any rent or other amount then due hereunder and unpaid, for the payment of any other sum for which Sublessor may become obligated by reason of Sublessee's default or breach, or for any loss or damage sustained by Sublessor as a result of Sublessee's default or breach. If Sublessor so uses any portion of the Security Deposit, Sublessee shall, within ten (10) days after written demand by Sublessor, restore the Security Deposit to the full amount originally deposited, and Sublessee's failure to do so shall constitute a default under this Sublease. Sublessor shall not be required to keep the Security Deposit separate from its general accounts, and shall have no obligation or liability for payment of interest on the Security Deposit. In the event Sublessor assigns its interest in this Sublease, Sublessor shall deliver to its assignee so much of the Security Deposit as is then held by Sublessor. Within ten (10) days after the Term has expired, or Sublessee has vacated the Premises, or any final adjustment pursuant to Subsection 6.2 hereof has been made, whichever shall last occur, and provided Sublessee is not then in default of any of its obligations hereunder, the Security Deposit, or so much thereof as had not theretofore been applied by Sublessor, shall be returned to Sublessee or to the last assignee, if any, of Sublessee's interest hereunder.
8. USE OF PREMISES.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The Premises shall be used and occupied only for sales, consulting and related general office functions, and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part of the Premises without the prior written consent of Sublessor (and the consent of Lessor, if such is required under the terms of the Master Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated into and made a part of this Sublease as if Sublessor were the lessor thereunder, Sublessee the lessee thereunder, and the Premises the Master Premises, except for the following:
See attached Addendum One to the Sublease
Sublessee assumes and agrees to perform the lessee's obligations under the Master Lease during the Term to the extent that such obligations are applicable to the Premises, except that the
3
obligation to pay rent to Lessor under the Master Lease shall be considered performed by Sublessee to the extent and in the amount rent is paid to Sublessor in accordance with Section 6 of this Sublease. Sublessee shall not commit or suffer any act or omission that will violate any of the provisions of the Master Lease. Sublessor shall exercise due diligence in attempting to cause Lessor to perform its obligations under the Master Lease for the benefit of Sublessee. If the Master Lease terminates, this Sublease shall terminate and the parties shall be relieved of any further liability or obligation under this Sublease, provided however, that if the Master Lease terminates as a result of a default or breach by Sublessor or Sublessee under this Sublease and/or the Master Lease, then the defaulting party shall be liable to the nondefaulting party for the damage suffered as a result of such termination. Notwithstanding the foregoing, if the Master Lease gives Sublessor any right to terminate the Master Lease in the event of the partial or total damage, destruction, or condemnation of the Master Premises or the building or project of which the Master Premises are a part, the exercise of such right by Sublessor shall not constitute a default or breach hereunder.
11. ATTORNEYS' FEES
If Sublessor, Sublessee, or Broker shall commence an action against the other arising out of or in connection with this Sublease, the prevailing party shall be entitled to recover its costs of suit and reasonable attorney's fees.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other real estate broker in connection with this transaction except: CB COMMERCIAL REAL ESTATE GROUP, INC., who represents Sublessor and Sublessee. In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both Sublessor and Sublessee, Sublessor and Sublessee hereby confirm that they were timely advised of the dual representation and they consent to the same, and that they do not expect said broker to disclose to either of them the confidential information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such consent is required under the terms of the Master Lease), Sublessor shall pay Broker a real estate brokerage commission in accordance with Sublessor's contract with Broker for the subleasing of the Premises, if any, and otherwise in the amount of (Per separate agreement) Dollars ($______) for services rendered in effecting this Sublease. Broker is hereby made a third party beneficiary of this Sublease for the purpose of enforcing its right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be given by either party on the other hereunder shall be in writing. All notices and demands by the Sublessor shall be sent by United States Mail, postage prepaid, addressed to the Sublessee at the Premises, and to the address hereinbelow, or to such other place as Sublessee may from time to time designate in a notice to the Sublessor. All notices and demands by the Sublessee to Sublessor shall be sent by
4
United States Mail, postage prepaid, addressed to the Sublessor at the address set forth herein, and to such other person or place as the Sublessor may from time to time designate in a notice to the Sublessee.
To Sublessor: E.I. du Pont de Nemours and Company, Corporate Real Estate, D12048A, 1007 Market Street, Wilmington, Delaware 19898.
To Sublessee: Lintronic Industries, 2030 SE Main Street, Suite 1250, Irvine, CA 92714.
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER THE
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document TERMS OF THE MASTER LEASE.
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act.
Sublessor: E.I. du Pont de Nemours and Sublessee: Lintronic Industries, a Company, a Delaware California corporation corporation
By:______By: /S/ KRIS SHAH ------
Title: ______Title: President ------
Date: ______Date: Oct. 24, 1997 ------
LESSOR'S AND LESSEE'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease and the undersigned Lessee hereby consents to the foregoing Sublease without waiver of any restriction in the Master Lease concerning further assignment or subletting. Lessor certifies that, as of the date of Lessor's execution hereof, Sublessor is not in default or breach of any of the provisions of the Master Lease, and that the Master Lease has not been amended or modified except as expressly set forth in the foregoing Sublease.
Lessor: Koll Tower Four Associates, Lessee: LG & E Energy Systems, Inc.
5
a California limited partnership a Kentucky corporation
By: ______By: ______
Title: ______Title: ______
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CONSULT YOUR ADVISORS -- This document has been prepared for approval by your attorney. No representation or recommendation is made by Broker as to the legal sufficiency or tax consequences of this document or the transaction to which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a professional, such as a civil engineer, industrial hygienist or other person, with experience in evaluating the condition of the property, including the possible presence of asbestos, hazardous materials and underground storage tanks.
6
EXHIBIT ONE
[Floorplan]
7
ADDENDUM ONE TO THAT CERTAIN SUBLEASE DATED OCTOBER 20, 1997 BY AND BETWEEN E.I. DU PONT DE NEMOURS AND COMPANY ("DU PONT") AND LINTRONIC INDUSTRIES ("LINTRONIC") FOR THE PREMISES LOCATED AT 2030 MAIN STREET, SUITE 1250, IRVINE, CALIFORNIA
BASE RENT: Months Rate/Rentable S.F. Monthly Total 1-46 $1.70 Fully Serviced $20,250.40
TENANT IMPROVEMENTS: Landlord shall clean the premises and shampoo the carpet. Otherwise, Tenant must accept the premises in its "as is" condition. Any proposed modifications to the suite must have the written approval of Sublessor and Lessor, and shall be at Sublessee's expense.
PARKING: Du Pont shall make available a maximum of forty-eight (48) in-common unreserved parking spaces to Lintronic at a monthly charge of $30.00 per space per month. Lintronic shall lease a minimum of thirty (30) of these parking spaces for the sublease term. Lintronic shall pay a one- time charge of $10.00 for each parking card issued.
HAZARDOUS MATERIALS: Du Pont has no knowledge of any toxic or hazardous materials within the proposed sublease premises. Du Pont will not provide any warranties or guarantees or be responsible for any remedies as a result of the presence of any toxic or hazardous materials.
INDEMNITY: Lintronic shall indemnify and hold Du Pont safe and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document harmless from and against any and all loss, costs, damages, claims, actions or liability on account of the death of or injury to any person or persons, or the damage to or destruction of any property or pollution arising from or growing out of Lintronic's use and occupancy of the subleased premises, unless caused in whole or in part by the willful misconduct or sole negligence of Du Pont or Lessor.
OPERATING EXPENSES: Lintronic shall have a 1998 base year. Lintronic shall pay for increases in operating expenses in excess of the 1998 base year, which shall be calculated to reflect 95% occupancy and in accordance with Section 6.2 of the Sublease document.
8
EARLY OCCUPANCY: Lintronic shall not commence to pay base rent or operating expenses other than after-hours heating, ventilation and air conditioning until November 18, 1997 regardless of Lintronic's actual occupancy date. Lintronic will be responsible for parking charges during its early occupancy. In the event Lintronic cannot occupy the Premises prior to November 17, 1997, and the delay in occupancy is through no fault of Lintronic, then rent shall commence one (1) business day after all approvals have been obtained from all parties to this Sublease.
FURNITURE: Du Pont shall allow Tenant to utilize the private office, conference room, reception area and modular furniture systems in place within the premises as of October 20, 1997 hereinafter referred to as Furniture. By signing below, Lintronic acknowledges that it has inspected and accepts the Furniture with respect to quantity and quality. As a condition of utilizing said Furniture, Lintronic and Du Pont shall comply with the following:
a. Lintronic shall deposit $30,000 as a non-refundable deposit towards the purchase of the Furniture.
b. Lintronic's deposit will be retained by Du Pont until the expiration of the sublease term and then applied together with a rental credit of $595.60 per month ($.05 per rentable square foot per month) towards the purchase price for a total rental credit of $27,397.60.
c. Du Pont will convey title to the Furniture to Lintronic for $1.00 at the end of the sublease term. Title
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document shall be conveyed by a bill of sale prepared by Du Pont.
d. Any default of the sublease terms or conditions will result in Lintronic's forfeiture of both the deposit and rental credit paid by Lintronic.
RIGHT TO ASSIGN SUBLEASE: Lintronic's rights to sublease or assign all or any portion of the Premises to any other entity or person per the terms of the Master Lease and subject to the approval of Lessor, Lessee and Sublessor.
SIGNAGE: No exterior signage is available from Lessor. All directory and suite signage shall be obtained through the Master Lessor and shall be at Lintronic's cost.
9
Sublessor: E.I. du Pont de Nemours and Sublessee: Lintronic Industries, a Company, a Delaware California corporation corporation
By: /S/ AUTHORIZED SIGNATORY By: /S/ KRIS SHAH ------
Title: Manager, Corporate Real Estate Title: President ------
By: /S/ NANCY J. McDANIEL By:______------
Title: Properties Manager Title:______------
Date: 10/28/97 Date: Oct. 24, 1997 ------
Lessor: Koll Tower Four Associates, Lessee: LG & E Energy Systems, Inc. a California limited a Kentucky corporation partnership
By: Koll Management Services, Inc., By: a Delaware Corporation As Agent ------
Title: ______Title: ______
By: /S/ AUTHORIZED SIGNATORY BY:______
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
Title: Portfolio Manager Title:______------
Date: 11/7/97 Date:______------
10
1st Mo. 20,250.40/mo. Sec Dep 20,250.40 Furniture Dep 30,000.00 Total 70,500,80
E.I. Du Pont de Nemours & Co.
11
LITRONIC INDUSTRIES, INC. GENERAL ACCOUNT 2950 RED HILL AVE PH 714-545-6649 COSTA MESA, CA 92626
BANK OF YORBA LINDA COSTA MESA, CALIFORNIA 92626 90-3789-1222
24667 024667
PAY **SEVENTY THOUSAND FIVE HUNDRED DOLLARS & 80 CENTS** TO THE ORDER OF E.I. DUPONT DE NEMOURS & COMPANY
DATE 10/24/97
AMOUNT $70,500.80
/S/ Kris Shah /S/ Nancy R. Mckenna
LITRONIC INDUSTRIES, INC.
24667
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 024667
DATE 10/24/97
INVOICE NO.
COMMENT
AMOUNT 70,500.80
DISCOUNT
NET AMOUNT $70,500.80
12
CHECK: 024667
10/24/97
E.I. DUPONT DE NEMOURS & CO.
TOTAL: $70,500.80
13
AMENDMENT NO. 1 TO OFFICE BUILDING SUB-SUBLEASE
This Amendment No. 1 to the Office Building Sub-sublease (the "Amendment") is made as of this 24 day of November 1997 by and between E. I. du Pont de Nemours and Company, a Delaware corporation ("Sublessor") and Lintronic Industries, a California Corporation ("Sublessee").
Sublessor and Sublessee are parties to that certain Office Building Sub-sublease dated October 20, 1997 (the "Sub-sublease") pursuant to which Sublessor sub- subleases to Sublessee that certain space identified as 11,912 rentable square feet in 2030 Main Street, Suite 1250, Irvine, California.
Sublessor and Sublessee agree to amend the Sub-sublease as follows:
1. Rent Commencement Date: Rent shall start November 24, 1997 and will continue through September 17, 2001.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Except as herein provided, all other terms and conditions of the Sub-sublease shall be in full force and effect.
Sublessor: Sublessee:
E.I. duPont de Nemours and Company, Lintronic Industries, a Delaware corporation a California corporation
By:______By: /s/ Kris Shah ------
Title:______Title: President ------
Date:______Date: Dec. 1, 97 ------
14
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.15
Table of Contents
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") amends and restates that Agreement for Wholesale Financing dated August 9, 1989 (as amended from time to time, the "Financing Agreement") and is hereby made this 30th day of October, 1997, by and between IBM CREDIT CORPORATION with a place of business at 1500 RiverEdge Parkway, Atlanta, GA 30328, a Delaware corporation, ("IBM Credit"), and PULSAR DATA SYSTEMS, incorporated, with a place of business at 4500 Forbes Boulevard, Lanham, MD 20706, a Delaware corporation, ("Customer").
WITNESSETH
WHEREAS, IBM Credit and Customer are parties to that certain Financing Agreement pursuant to which IBM Credit finances Customer's acquisition of inventory and equipment;
WHEREAS, in the course of Customer's operations, Customer intends to purchase from Persons approved in writing by IBM Credit for the purposes of this Agreement (the "Authorized Suppliers") computer hardware and software products manufactured or distributed by or bearing any trademark or trade name of such Authorized Suppliers (the "Products") (as of the date hereof the Authorized Suppliers are as set forth on Attachment E hereto);
WHEREAS, Customer has requested that IBM Credit finance its purchase of Products from such Authorized Suppliers and its working capital requirements, and IBM Credit is willing to provide such financing to Customer subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree that the Financing Agreement is hereby amended and restated in its entirety as follows:
Section 1. DEFINITIONS; ATTACHMENTS
1.1 Special Definitions. The following terms shall have the following respective meaning in this Agreement:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "A/R Advance": any loan or advance of funds made by IBM Credit to or on behalf of Customer pursuant to Section 2.3 of this Agreement, including, as the context may require, a WCO Advance, a PRO Advance and a Takeout Advance.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance under this Agreement.
"A/R Advance Term": shall be the collective or individual reference, as the context may require, to a PRO Advance Term and a WCO Advance Term.
Page 4 of 46
"A/R Finance Charges": as defined on Attachment A.
"Accounts": as defined in the U.C. C.
"Advance": any loan or other extension of credit by IBM Credit to or on behalf of Customer pursuant to this Agreement including, without limitation, (i) Product Advances and (ii) A/R Advances.
"Affiliate": with respect to the Customer, any Person meeting one of the following: (i) at least 10% of such Person's equity is owned, directly or indirectly, by Customer; (ii) at least 10% of Customer's equity is owned, directly or indirectly, by such Person; or (iii) at least 10% of Customer's equity and at least 10% of such Person's equity is owned, directly or indirectly, by the same Person or Persons. All of Customer's officers, directors, joint venturers, and partners shall also be deemed to be Affiliates of Customer for purposes of this Agreement.
"Agreement": as defined in the caption.
"Auditors": a nationally recognized firm of independent certified public accountants selected by Customer and satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the Outstanding Advances at such time.
"Average Daily Balance": the sum of the unpaid principal of Outstanding Product Advances or Outstanding A/R Advances, as the case may be, as of each day during a calendar month, divided by the number of days in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are generally closed or on which IBM Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness of this Agreement set forth in Section 5.1 hereof are satisfied or waived in writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by Customer to IBM
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Credit from time to time, as provided herein, signed by the chief executive officer or chief financial officer of Customer, substantially in the form and detail of Attachment F hereto, detailing and certifying, among other items: a summary of Customer's inventory on hand financed by IBM Credit and Customer's Eligible Accounts, the amounts and aging of all of Customer's Accounts, Customer's inventory on hand financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice price to Customer and the total of the line item values for all inventory listed on the report, the amounts and aging of Customer's accounts payable as
Page 5 of 46 of a specified date, all of Customer's IBM Credit borrowing activity during a specified period and the total amount of Customer's Borrowing Base as well as Customer's Outstanding A/R Advances, Outstanding Product Advances, Available Credit and any Shortfall Amount as of a specified date.
"Common Due Date": (1) the fifth day of a calendar month if the Product Financing Period or A/R Advance Term, whichever is applicable, expires on the first through tenth of such calendar month; (2) the fifteenth day of a calendar month if the Product Financing Period or A/R Advance Term, whichever is applicable, expires on the eleventh through twentieth of such calendar month; and (3) the twenty-fifth day of a calendar month if the Product Financing Period or A/R Advance Term, whichever is applicable, expires on the twenty-first through the last day of such calendar month.
"Compliance Certificate": a certificate substantially in the form of Attachment C.
"Credit Line": as defined in Section 2.1.
"Customer": as defined in the caption.
"Default": either (1) an Event of Default or (2) any event or condition which, but for the requirement that notice be given or time lapse or both, would be an Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Accounts": as defined in Section 3.1.
"Environmental Laws": all statutes, laws, judicial decisions, regulations, ordinances, and other governmental restrictions relating to pollution, the protection of the environment, occupational health and safety, or to emissions, discharges or release of pollutants, contaminants, hazardous substances or wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action, allegation, order, violation, injury, judgment, penalty or fine, cost or expense, resulting from the violation or alleged violation of any Environmental Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any successor statutes.
"Event of Default": as defined in Section 9.1.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Financial Statements": the consolidated and consolidating balance sheets (including, without limitation, securities such as stocks and investment bonds), statements of operations, statements of cash flows and statements of changes in shareholder's equity of Customer and its Subsidiaries for the period specified, prepared in accordance with GAAP and Consistent with prior practices.
Page 6 of 45
"Floor Plan Lender": any Person who now or hereinafter provides inventory financing to Customer, provided that such Person executes an Intercreditor Agreement (as defined in Section 5.1 of this Agreement) or a subordination agreement with IBM Credit in form and substance satisfactory to IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in which IBM Credit does not charge Customer a financing charge. IBM Credit shall calculate the Customer's Free Financing Period utilizing a methodology that is consistent with the methodologies used for similarly situated customers of IBM Credit. The Customer understands that IBM Credit may not offer or may cease to offer a Free Financing Period for the Customer's purchases of Products. IBM Credit will use its best efforts to timely inform Customer of a change in a Free Financing Period made available by an Authorized Supplier, however IBM Credit assumes no liability of any kind for any delay or failure on its part to provide such information.
"Free Financing Period Exclusion Fee": as defined in Attachment A.
"GAAP": generally accepted accounting principles in the United States as in effect from time to time.
"Governmental Authority": any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing.
"Hazardous Substances": all substances, wastes or materials, to the extent subject to regulation as "hazardous substances" or "hazardous waste" under any Environmental Laws.
"IBM Credit": as defined in the caption.
Indebtedness": with respect to any Person, (1) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (2) all obligations of such Person under capital leases (including obligations under any leases Customer may enter into, now or in the future with IBM Credit), (3) all obligations of such Person in respect of letters of credit, banker's acceptances or similar obligations issued or created for the account of such Person, (4) liabilities arising under any interest rate protection, future, option swap, cap or hedge agreement or arrangement under which such Person is a party or beneficiary, (5) all obligations under guaranties of such Person and (6) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Page 7 of 46
"Investment": with respect to any Person (the "Investor"), (1) any investment by the Investor in any other Person, whether by means of share purchase, capital contribution, purchase or other acquisition of a partnership or joint venture interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust, mortgage, other encumbrance or other arrangement having the practical effect of the foregoing, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement.
"Material Adverse Effect": a material adverse effect (1) on the business, operations, results of operations, assets, or financial condition of the Customer, (2) on the aggregate value of the Collateral or the aggregate amount which IBM Credit would be likely to receive (after giving consideration to reasonably likely delays in payment and reasonable costs of enforcement) in the liquidation of such Collateral to recover the Obligations in full, or (3) on the rights and remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2) the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations, loans, advances, interest (including interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Customer, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind and nature whatsoever now or hereafter arising, owing, due or payable from Customer to IBM Credit.
"Other Documents": all security agreements, mortgages, leases, instruments, documents, guarantees, schedules of assignment, contracts and similar agreements executed by Customer and delivered to IBM Credit, pursuant to this Agreement or otherwise, and all amendments, supplements and other modifications to the foregoing from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the unpaid principal amount of all Advances made by IBM Credit under this Agreement, and (2) any finance charge, fee, expense or other amount related to Advances charged to Customer's account with IBM Credit.
"Outstanding A/R Advances": at any time of determination, the sum of (1) the unpaid principal amount of all A/R Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to A/R Advances charged to Customer's account with IBM Credit.
Page 8 of 46
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Outstanding Product Advances": at any time of determination, the sum of (1) the unpaid principal amount of all Product Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to Product Advances charged to Customer's account with IBM Credit.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Indebtedness to any Floor Plan Lender;
(4) Purchase Money Indebtedness;
(5) guaranties in favor of IBM Credit; and
(6) other Indebtedness consented to by IBM Credit in writing prior to incurring such Indebtedness.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common carriers, landlords and other similar Liens arising by operation of law or otherwise, not waived in connection herewith, for amounts that are not yet due and payable or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect;
(5) attachment or judgement Liens individually or in the aggregate not in excess of $250,000 (exclusive of (A) any amounts that are duly bonded to the satisfaction of IBM Credit or (B) any amount fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgement in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of Customer;
(7) extensions of renewals of the foregoing permitted Liens; provided that (A) the aggregate amount of such extended or renewed Liens do not
Page 9 of 46
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document exceed the original principal amount of the Indebtedness for which it secures, (B) such Liens do not extend to any property other than property already previously subject to the Lien and (C) such extended or renewed Liens are on terms and conditions no more restrictive than the terms and conditions of the Liens being extended or renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts, leases, surety and appeal bonds and other obligations of like nature arising in the ordinary course of the Customer's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect;
(10) Liens arising out of deposits in connection with workers' compensation, unemployment insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement; and
(12) other Liens consented to by IBM Credit in writing prior to incurring such Lien.
"Person": any individual, association, firm, corporation, partnership, trust, unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by Customer under this Agreement or any of the Other Documents.
"Prime Rate": as of the date of determination, the average of the rates of interest announced by Citibank, N.A., Chase Manhattan Bank and Bank of America National Trust & Savings Association (or any other bank which IBM Credit uses in its normal course of business of determining Prime Rate) as their prime or base rate, as of the last Business Day of the calendar month immediately preceding the date of determination, whether or not such announced rates are the actual rates charged by such banking institutions to their most creditworthy borrowers.
"PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to itself on behalf of Customer to repay all or a portion of a Product Advance that is due and payable.
"PRO Advance Term": for each PRO Advance, a period, in increments of ten days as specified by Customer in the Request for A/R Advance with respect to such PRO Advance, but in no event in excess of thirty days, commencing on the A/R Advance Date for such PRO Advance.
"Product Advance": any advance of funds made or committed to be made by IBM Credit for the account of Customer to an Authorized Supplier in respect of an invoice delivered by such Authorized Supplier to IBM Credit describing Products purchased by Customer, including any such purchased by Customer, including any such
Page 10 of 46
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document advance made or committed to be made as of the date hereof pursuant to the Financing Agreement.
"Product Financing Charge": as defined in Attachment A.
"Product Financing Period": for each Product Advance, a period of days equal to that set forth in Attachment A from time to time, commencing on the invoice date of such Product Advance.
"Purchase Money Indebtedness": any Indebtedness (including capital leases) incurred to finance the acquisition of assets (other than assets manufactured or distributed by or bearing any trademark or trade name of any Authorized Supplier) to be used in the Customer's business not to exceed the lesser of (1) the purchase price or acquisition cost of such asset and (2) the fair market value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase Money Indebtedness, which security interest applies solely to the particular asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.3.
"Requirement of Law": as to any Person, the articles of incorporation and by- laws of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.6.
"Shortfall Transaction Fee": as defined in Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Person performing similar functions are at the time directly or indirectly owned by such Person.
"Takeout Advance": an A/R Advance made to existing creditors of Customer on behalf of Customer, in an amount sufficient to discharge Customer's indebtedness to such creditor.
"Termination Date": shall mean the first anniversary of the date of this Agreement or such other date as IBM Credit and Customer may agree to from time to time.
"Voting Stock": securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions). "WCO Advance": an A/R Advance, with a WCO Advance Term.
Page 11 of 46
"WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180) days commencing on the A/R Advance Date for such WCO Advance.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which are defined in the Uniform Commercial Code as in effect in the State of New York (the "U.C.C.") shall have the meanings assigned to them therein.
1.3. Attachments. All attachments, exhibits, schedules and other addenda hereto, including, without limitation, Attachment A and Attachment B, are specifically incorporated herein and made a part of this Agreement.
Section 2. CREDIT LINE/ FINANCE CHARGES/ OTHER CHARGES
2.1. Credit Line. Subject to the terms and conditions set forth in this Agreement, on and after the Closing Date to but not including the date that is the earlier of (x) the date on which this Agreement is terminated pursuant to Section 10. and (y) the date on which IBM Credit terminates the Credit Line pursuant to Section 9., IBM Credit agrees to extend to the Customer a credit line ("Credit Line") in the amount set forth the Attachment A pursuant to which IBM Credit will make to the Customer, from time to time, Advances in an aggregate amount at any one time outstanding not to exceed the Maximum Advance Amount. Notwithstanding any other term or provision of this Agreement, IBM Credit may, at any time and from time to time, in its sole discretion (x) temporarily increase the amount of the Credit Line above the amount set forth in Attachment A and decrease the amount of the Credit Line back to the amount of the Credit Line set forth in Attachment A, in each case upon written notice to the Customer and (y) make Advances pursuant to this Agreement upon the request of Customer in an aggregate amount at any one time outstanding in excess of the Credit Line.
2.2. Product Advances. (A) Subject to the terms and conditions of this Agreement, IBM Credit shall make Product Advances in connection with Customer's purchase of Products from Authorized Suppliers (as defined under WITNESSETH). Customer hereby authorizes and directs IBM Credit to pay the proceeds of Product Advances directly to the applicable Authorized Supplier in respect of invoices delivered to IBM Credit for such Products by such Authorized Supplier and acknowledges that each such Product Advance constitutes a loan by IBM Credit to Customer pursuant to this Agreement as if the Customer received the proceeds of the Product Advance directly from IBM Credit.
(B) No finance charge shall accrue on any Product Advance during the Free Financing Period, if any, applicable to such Product Advance. Customer shall repay each Product Advance no later than the Common Due Date for such Product Advance. Customer may, at its option, repay each Product Advance by requesting IBM Credit to apply all or any part of the principal amount of an A/R Advance to the Outstanding Product Advances. Customer's request for such application shall be made in accordance with Section 2. When so requested and subject to the terms and conditions of this Agreement, IBM Credit shall apply the amount so requested to the amounts due in respect of the Outstanding Product Advances. Nothing
Page 12 of 46 contained herein shall relieve Customer of its obligation to repay Product Advances when due. Each Product Advance shall accrue a finance charge on the Average Daily Balance thereof from and including the first (1st) day following the end of the Free Financing Period, if any, for such Product Advance, or if no such Free Financing Period shall be in effect, from and including the date of invoice for such Product Advance, in each case, to and including the date such Product Advance shall become due and payable in accordance with the terms of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document this Agreement, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement as the "Product Financing Charge" and (b) the highest rate from time to time permitted by applicable law.
In addition, for any Product Advance with respect to which a Free Financing Period shall not be in effect, Customer shall pay a Free Financing Period Exclusion Fee. Such fee shall be due and payable on the Common Due Date for such Product Advance. If it is determined that amounts received from Customer were in excess of the highest rate permitted by law, then the amount representing such excess shall be considered reductions to principal of Advances.
(C) Customer acknowledges that IBM Credit does not warrant the Collateral. Customer shall be obligated to pay IBM Credit in full even if the Collateral is defective or fails to conform to the warranties extended by the Authorized Supplier. The Obligations of Customer shall not be affected by any dispute Customer may have with any manufacturer, distributor or Authorized Supplier. Customer will not assert any claim or defense which it may have against any manufacturer, distributor or Authorized Supplier against IBM Credit.
(D) Customer hereby authorizes IBM Credit to collect directly from any Authorized Supplier any credits, rebates, bonuses or discounts owed by such Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits received by IBM Credit may be applied by IBM Credit to the Outstanding Advances. IBM Credit will use its best efforts to provide a schedule of Supplier Credits to Customer weekly or upon Customer's reasonable demand. Any Supplier Credits collected by IBM Credit shall in no way reduce Customer's debt to IBM Credit in respect of the Outstanding Advances until such Supplier Credits are applied by IBM Credit.
(E) IBM Credit may apply any payments and Supplier Credits received by IBM Credit to reduce finance charges first and then to principal amounts of Advances owed by Customer. IBM Credit may apply principal payments to the oldest (earliest) invoices (and related Product Advances) first, but, in any case, all principal payments will be applied in respect of the Outstanding Product Advances made for Products which have been sold, lost, stolen, destroyed, damaged or otherwise disposed of prior to any other application thereof.
(F) Customer will indemnify and hold IBM Credit harmless from and against any claims or demands asserted by any Person relating to or arising from the Collateral for any reason whatsoever, including, without limitation, the condition of the Collateral, any misrepresentation made about the Collateral by any representative of
Page 13 of 46
Customer, or any act or failure to act by Customer except to the extent such claims or demands are directly attributable to IBM Credit's gross negligence or willful misconduct. Nothing contained in the foregoing shall impair any rights or claims which the Customer may have against any manufacturer, distributor or Authorized Supplier.
2.3. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's request for such an Advance ("Request for A/R Advance"). For any requested A/R
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Advance pursuant to which monies will be disbursed to Customer or any Person other than IBM Credit, a Request for A/R Advance shall be delivered to IBM Credit on or prior to 1:00 p.m. (eastern time) one Business Day prior to the requested A/R Advance Date. The Request for A/R Advance shall specify (i) the requested A/R Advance Date; (ii) the amount of the requested A/R Advance; (iii) whether such A/R Advance is a WCO Advance or a PRO Advance; (iv) if applicable, the PRO Advance Term for such A/R Advance; (v) for each PRO Advance, the month, day and year of the Common Due Date, as set forth in Customer's applicable billing statement from IBM Credit, for the Product Advance to which the PRO Advance is to be applied; and (vi) if applicable, the amount of the requested A/R Advance that should be applied to the Outstanding Product Advances (provided that all PRO Advances shall be applied to the Outstanding Product Advances). Customer may deliver a Request for A/R Advance via facsimile. Any Request for A/R Advance delivered to IBM Credit shall be irrevocable. Notwithstanding any other provision of this Agreement, Customer shall not (i) request more than one PRO Advance in respect of any Product Advance; and (ii) request a PRO Advance for any Common Due Date on which Customer will take a discount offered by IBM Credit for invoice amounts paid in full within fifteen days of the invoice date under IBM Credit's High Turnover Option ("HTO") Program.
(B) Subject to the terms and conditions of this Agreement, on the A/R Advance Date specified in a Request for A/R Advance, IBM Credit shall make the principal amount of each A/R Advance available to the Customer in immediately available funds to an account maintained by Customer (or in the case of a Takeout Advance, as directed by Customer). If IBM Credit is making an A/R Advance hereunder on a day on which Customer is to repay all or any part of an Outstanding Advance (or any other amount owing hereunder), IBM Credit shall apply the proceeds of the A/R Advance to such repayment and only an amount equal to the difference, if any, between the amount of the A/R Advance and the amount being repaid shall be made available to Customer as provided in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid principal amount thereof, from and including the date of each A/R Advance to and including the date such A/R Advance is due and payable in accordance with the terms of this Agreement at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement under the caption "A/R Finance Charge" for such type of A/R Advance, or (b) the highest rate from time to time permitted by applicable law. If it is determined that amounts received from the Customer were in excess of such highest rate, then the amount
Page 14 of 46 representing such excess shall be considered reductions to principal of Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid principal amount of each A/R Advance, other than a Takeout Advance, shall be due and payable on the applicable Common Due Date. Unless otherwise notified by Customer in writing prior to the day the principal amount of any WCO Advance becomes due and payable, the customer shall be deemed to have provided IBM Credit with a Request for A/R Advance requesting a WCO Advance on the day such principal amount is due and payable in an amount equal to the unpaid principal amount of the WCO Advance so due. Subject to the terms and conditions of this Agreement, the principal amount of such WCO Advance shall automatically renew for an additional WCO Advance Term. Notwithstanding any other provision of this
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Agreement, a Takeout Advance may only be requested on the Closing Date and such Takeout Advance shall be limited to an amount sufficient to discharge the indebtedness that is the subject of a Takeout Advance.
Unless otherwise agreed in writing, a Takeout Advance shall be due pursuant to the Schedule of Repayments in Attachment D to this Agreement.
2.4. Finance and Other Charges. (A) Finance charges shall be calculated by multiplying the applicable Delinquency Fee Rate, Product Financing Charge or A/R Finance Charge provided for in this Agreement by Customer's applicable Average Daily Balance. The Delinquency Fee Rate, the Product Financing Charge and the various A/R Finance Charges provided for in this Agreement are each computed on the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit additional charges for any returned items of payment received by IBM Credit. The Customer hereby acknowledges that any such charges are not interest but that such charges, if unpaid, will constitute part of the Outstanding Advances.
(C) The finance charges and Other Charges owed under this Agreement, and any charges hereafter agreed to in writing by the parties, are payable monthly on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its sole discretion, add unpaid finance charges and Other Charges to the Customer's outstanding Advances.
(D) If any amount owned under this Agreement, including, without limitation, any Advance, is not paid when due (whether at maturity, by acceleration or otherwise), the unpaid amount thereof will bear a late charge from and including the day after such Advance was due and payable to and including the date IBM Credit receives payment thereof, at a per annum rate equal to the lesser of (a) the amount set forth in Attachment A to this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time to time permitted by applicable law. In addition, if any Shortfall Amount shall not be paid when due pursuant to Section 2.6 hereof, Customer shall pay IBM Credit a Shortfall Transaction Fee. If
Page 15 of 46
it is determined that amounts received from Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances.
2.5 Statements Regarding Customer's Account. IBM Credit will send statements of each transaction hereunder as well as monthly billing statements to Customer with respect to Advances and other charges due on Customer's account with IBM Credit. Each statement of transaction and monthly billing statement shall be deemed, absent manifest error, to be correct and shall constitute an account stated with respect to each transaction or amount described therein unless within seven (7) Business Days after such statement of transaction or billing statement is received by Customer, Customer provides IBM Credit written notice objecting that such amount or transaction is incorrectly described therein and specifying the error(s), if any, contained therein. IBM Credit may at any time adjust such statements of transaction or billing statements to comply with
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document applicable law and this Agreement.
2.6. Shortfall. If, on any date, the Outstanding Advances shall exceed the Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer shall on such date prepay the Outstanding Advances in an amount equal to such Shortfall amount.
2.7. Application of Payments. The Customer hereby agrees that all checks and other instruments delivered to IBM Credit on account of Customer's Obligations shall constitute conditional payment until such items are actually collected by IBM Credit. The Customer waives the right to direct the application of any and all payments at any time or times hereafter received by IBM Credit on account of the Customer's Obligations. Customer agrees that IBM Credit shall have the continuing exclusive right to apply and reapply any and all such payments to Customer's Obligations in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any of its books and records.
2.8. Prepayment and Reborrowing By Customer. (A) Customer may at any time prepay, without notice or penalty, in whole or in part amounts owed under this Agreement. IBM Credit may apply payments made to it (whether by the Customer or otherwise) to pay finance charges and other amounts owing under this Agreement first and then to the principal amount owed by the Customer.
(B) Subject to the terms and conditions of this Agreement, any amount prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be reborrowed by Customer in accordance with the provisions of this Agreement.
Section 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall have the sole right to determine eligibility of Accounts from an Account debtor for purposes of determining the Borrowing Base; however, without limiting such right, the following Accounts will be deemed to be ineligible for purposes of determining the Borrowing Base;
Page 16 of 46
(A) Accounts created from the sale of goods and/or performance of services (i) on non-standard terms or (ii) that allow for payment to be made more than thirty (30) days from the date of such sale or performance or services or (iii) to Nexus Unlimited, Inc.
(B) Accounts unpaid more than: (i) one hundred twenty (120) days from date of invoice if the Account debtor is a United States government institution; or (ii) ninety (90) days from date of invoice for all other Account debtors;
(C) Accounts payable by an Account debtor if fifty percent (50%) or more of the aggregate outstanding balance of all such Accounts remain unpaid for more than: (i) one hundred twenty (120) days from date of invoice if the Account debtor is a United States government institution; or (ii) ninety (90) days from date of invoice for all other Account debtors;
(D) Accounts payable by an Account debtor that is an Affiliate of Customer, or an officer, employee, agent, guarantor, stockholder of Customer or an Affiliate of Customer, or is related to or has common shareholders, officers or directors with Customer;
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (E) Accounts arising from consignment sales;
(F) Except for state, local and United States government institutions and public educational institutions, Accounts with respect to which the payment by the Account debtor is or may be conditional;
(G) Except for state, local and United States government institutions and public educational institutions, Accounts with respect to which : (i) the Account debtor is not a commercial entity, or (ii) the Account debtor is not a resident of the United States;
(H) Accounts payable by any Account debtor to which Customer is or may become liable for goods sold or services rendered by such Account debtor to Customer;
(I) Accounts arising from the sale or lease of goods purchased for a personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods that have been used for demonstration purposes or loaned or leased by the Customer to another party;
(K) Accounts which are progress payment accounts or contra accounts;
(L) Accounts upon which IBM Credit does not have a valid, perfected, first priority security interest;
(M) Accounts payable by an Account debtor that is or Customer knows will become, subject to proceedings under United States Bankruptcy Law or other law for the relief of debtors;
(N) Accounts that are not payable in US dollars;
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(O) Accounts payable by any Account debtor that is a remarketer of computer hardware and software products and whose purchases of such products from Customer have been financed by another person, other than IBM Credit, who pays the proceeds of such financing directly to Customer on behalf of such debtor ("Third Party Financer") unless (i) such Third Party Financer does not have a separate financing relationship with Customer or (ii) such Third Party Financer has a separate financing relationship with Customer and has waived its right to set off its obligations to Customer;
(P) Accounts arising from the sale or lease of goods which are billed to any Account debtor but have not yet been shipped by Customer;
(Q) Accounts with respect to which Customer has permitted or agreed to any extension, compromise or settlement, or made any change or modification of any kind or nature, including, but not limited to, any change or modification to the terms relating thereto;
(R) Accounts that do not arise from undisputed bona fide transactions completed in accordance with the terms and conditions contained in the invoices,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document purchase orders and contracts relating thereto;
(S) Accounts that are discounted for the full payment term specified in Customer's terms and conditions with its Account debtors, or for any longer period of time.
(T) Accounts on cash on delivery (C.O.D.) Terms;
(U) Accounts arising from maintenance or service contracts that are billed in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts, credits, and refunds from a supplier; and
(X) Upon thirty (30) days prior notice, any and all other Accounts that IBM Credit deems, in its sole and absolute discretion, to be ineligible, provided however, that no direct obligation of the government of the United States of America shall be deemed ineligible pursuant to this subsection (X).
The aggregate of all Accounts that are not ineligible Accounts shall hereinafter be referred to as "Eligible Accounts".
3.2 Reimbursement for Charges. Customer agrees to pay for all costs and expenses of Customer's bank in respect to collection of checks and other items of payment, all fees relating to the use and maintenance of the Lockbox and the Special Account (each as defined in Section 3.3) and with respect to remittances of proceeds of the Advances hereunder.
3.3 Lockbox and Special Account. Customer shall establish and maintain a lockbox ("Lockbox") at the address set forth in Attachment A
Page 18 of 46 with the financial institution listed in Attachment A ("Bank") pursuant to an agreement between the Customer and Bank in form and substance satisfactory to IBM Credit. Customer shall also establish and maintain a deposit account which shall contain only proceeds of Customer's Accounts ("Special Account") with such Bank. Customer shall enter into and maintain a contingent blocked account agreement with such Bank for the benefit of IBM Credit in form and substance satisfactory to IBM Credit pursuant to which, among other things, such Bank shall agree that, upon notice from IBM Credit, disbursements from the Special Account shall be made only as IBM Credit shall direct.
3.4. Collections. Customer shall instruct all Account debtors to remit payments directly to a Lockbox. In addition, Customer shall have such instruction printed in conspicuous type on all invoices. Customer shall instruct such Bank to deposit all remittances to such Bank's Lockbox into its Special Account. Customer further agrees that it shall not deposit or permit any deposits of funds other than remittances paid in respect of the Accounts into the Special Account(s) or permit any commingling of funds with such remittances in any Lockbox or Special Account. Without limiting the Customer's foregoing obligations, if, at any time, Customer receives a remittance directly from an Account debtor, then Customer shall make entries on its books and records in a manner that shall reasonably identify such remittances and shall
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document keep a separate account on its record books of all remittances so received and deposit the same into a Special Account. Until so deposited into the Special Account, Customer shall keep all remittances received in respect of Accounts separate and apart from Customer's other property so that they are capable of identification as the proceeds of Accounts in which IBM Credit has a security interest.
3.5. Application of Remittances and Credits. Customer shall apply all remittances against the aggregate of Customer's outstanding Accounts no later than the end of the Business Day on which such remittances are deposited into the Special Account. Customer also agrees to apply each remittance against its respective Account no later than three (3) Business Days from the date such remittance is deposited into the Special Account. In addition, Customer shall promptly apply any credits owing in respect to any Account when due.
3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with full power of substitution, as its true and lawful attorney-in-fact with full power, in good faith and in compliance with commercially reasonable standards, in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected the security interest in the Collateral contemplated under this Agreement and the Other Documents;
(B) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation; and upon the occurrence and during the continuance of an Event of Default, as defined in Section 9.1 hereof, which is not waived by the IBM Credit;
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(C) demand payment, enforce payment and otherwise exercise all Customer's rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in Bankruptcy or similar document against any Account debtor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to any Account or goods pertaining thereto;
(K) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation;
(L) sign the name of Customer to requests for verification of Accounts and notices thereof to Account debtors;
(M) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to enforce any and all remedies it may have under this Agreement, at law or otherwise; and
(N) make, settle and adjust claims under the Policies with respect to the Collateral and endorse Customer's name on any check, draft, instrument or other item of payment of the proceeds of the Policies with respect to the Collateral; and
(O) take control in any manner of any term of payment or proceeds and for such purpose to notify the postal authorities to change the address for delivery of mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled with an interest and is irrevocable so long as this Agreement is in effect or any Obligations remain outstanding. Nothing done by IBM Credit pursuant to such power of attorney will reduce any of Customer's Obligations other than Customer's payment Obligations to the extent IBM Credit has received monies.
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Section 4. SECURITY -- COLLATERAL
4.1 Grant. To secure Customer's full and punctual payment and performance of the Obligations (including obligations under leases Customer may enter into, now or in the future, with IBM Credit) when due (whether at the stated maturity, by acceleration or otherwise), Customer hereby grants IBM Credit a security interest in all of Customer's right, title and interest in and to the following property, whether now owned or hereafter acquired or existing and wherever located:
(A) all inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit accounts, obligations of any kind owning to Customer, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services an all books, invoices, documents and other records in any form evidencing or relating to any of the foregoing;
(C) general intangibles;
(D) all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document proceeds of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the "Collateral."
Customer covenants and agrees with IBM Credit that: (a) the security constituted to by this Agreement is in addition to any other security from time to time held by IBM Credit and (b) the security hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of Customer to IBM Credit.
4.2 Further Assurances. Customer shall, from time to time upon the request of IBM Credit, execute and deliver to IBM Credit, or cause to be executed and delivered, at such time or times as IBM Credit may request such other and further documents, certificates and instruments that IBM Credit may deem necessary to perfect and maintain perfected IBM Credit's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under this Agreement and the Other Documents. Customer shall make appropriate entries on its books and records disclosing IBM Credit's security interests in the Collateral.
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Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of this Agreement. The effectiveness of this Agreement is subject to the receipt by IBM Credit of, or waiver in writing by IBM Credit of compliance with, the following conditions precedent:
(A) this Agreement executed and delivered by Customer and IBM Credit;
(B) (i) copies of the resolutions of the Board of Directors of Customer certified by the secretary or assistant secretary of Customer authorizing the execution, delivery and performance of this Agreement and each Other Document executed and delivered in connection herewith, (ii) a certificate of the secretary or an assistant secretary of Customer, in form and substance satisfactory to IBM Credit, certifying the names and true signatures of the officers of Customer authorized to sign this Agreement and the Other Documents and (iii) copies of the articles of incorporation and by-laws of Customer certified by the secretary or assistant secretary of Customer;
(C) certificates dated as of a recent date from the Secretary of State or other appropriate authority evidencing the good standing of Customer in the jurisdiction of its organization and in each other jurisdiction where the ownership or lease of its property or the conduct of its business requires it to qualify to do business;
(D) copies of all approvals and consents from any Person, in each case in form and substance satisfactory to IBM Credit, which are required to enable Customer to authorize, or required in connection with, (a) the execution, delivery or performance of this Agreement and each of the Other Documents, and (b) the legality, validity, binding effect or enforceability of this Agreement and each of the Other Documents;
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (E) a lockbox agreement executed by Customer and each Bank, in form and substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by Customer and each Bank in form and substances satisfactory to IBM Credit;
(G) intercreditor agreements ("Intercreditor Agreement"), in form and substance satisfactory to IBM Credit, executed by each other secured creditor of Customer as set forth in Attachment A;
(H) a favorable opinion of counsel for Customer in substantially the form of Attachment H;
(I) UCC-1 financing statements for each jurisdiction reasonably requested by IBM Credit executed by Customer and each guarantor whose guaranty to IBM Credit is intended to be secured by a pledge of its assets;
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(J) the statements, certificates, documents, instruments, financing statements, agreements and information set forth in Attachment A and Attachment B; and
(K) all such other statements, certificates, documents, instruments, financing statements, agreements and other information with respect to the matters contemplated by this Agreement as IBM Credit shall have reasonably requested.
5.2. Conditions Precedent to Each Advance. No Advance will be required to be made or renewed by IBM Credit under this Agreement unless, on and as of the date of such Advance, the following statements shall be true to the satisfaction of IBM Credit;
(A) The representations and warranties contained in this Agreement or in any document, instrument or agreement executed in connection herewith, are true and correct in all material respects on and as of the date of such Advance as though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to such Advance or the application of the proceeds thereof would result in or would constitute a Default;
(C) No event has occurred and is continuing which could reasonably be expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance, no Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in writing prior to each request, each request (or deemed request pursuant to Section 2.3 (D)) for an Advance hereunder and the receipt (or deemed receipt) by the Customer of the proceeds of any Advance hereunder shall be deemed to be a representation and warranty by Customer that, as of and on the date of such Advance, the statements set forth in (A) through (D) above are true statements. No such disclosures by Customer to IBM Credit shall in any manner be deemed to satisfy the conditions precedent to each Advance that are set forth in this Section 5.2.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Section 6. REPRESENTATIVES AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and warrants to IBM Credit as follows;
6.1. Organization and Qualifications. Customer and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the power and authority to own its properties and assets and to transact the businesses in which it presently is engaged and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where it presently is engaged in business and is required to be so qualified. 6.2. Rights in Collateral; Priority of Liens. Customer and each of its Subsidiaries owns the property granted by it respectively as Collateral
Page 23 of 46 to IBM Credit, free and clear of any and all Liens in favor of third parties except for the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties and the Other Documents in the Collateral constitute the valid and enforceable first, prior and perfected Liens on the Collateral, except to the extent any Liens that are prior to IBM Credit's Liens are (i) the subject of an Intercreditor Agreement or (ii) Purchase Money Security Interests in product of a brand that is not financed by IBM Credit.
6.3. No Conflicts. The execution, delivery and performance by Customer of this Agreement and each of the Other Documents (i) are within its corporate power; (ii) are duly authorized by all necessary corporate action; (iii) are not in contravention in any respect of any Requirement of Law or any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it or any of its properties are bound; (iv) do not require the consent, registration or approval of any Governmental Authority or any other Person (except such as have been duly obtained, made or given, and are in full force and effect); and (v) will not, except as contemplated herein, result in the imposition of any Liens upon any of its properties.
6.4. Enforceability. This Agreement and all of the other documents executed and delivered by the Customer in connection herewith are the legal, valid and binding obligations of Customer, and are enforceable in accordance with their terms, except as such enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting creditors' rights generally or the general equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal place of business and chief executive office of Customer is as set forth on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and records of Customer, and all of its chattel paper (other than the chattel paper delivered to IBM Credit pursuant to Section 7.14(E)) and records of Accounts, are maintained exclusively at such locations.
There is no jurisdiction in which Customer has any assets, equipment or inventory (except for vehicles and inventory in transit for processing) other
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document than those jurisdictions identified on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment B, as amended from time to time by any notice provided by Customer to IBM Credit in accordance with Section 7.7(C) of this Agreement, also contains a complete list of the legal names and addresses of each warehouse at which the Customer's inventory is stored. None of the receipts received by Customer from any warehouseman states that the goods covered thereby are to be delivered to bearer or to the order of a named person or to a named person and such named person's assigns. 6.6. Fictitious Business Names. Customer has not used any corporate or fictitious name during the five (5) years preceding the date of this Agreement, other than those listed on Attachment B.
Page 24 of 46
6.7. Organization. All of the outstanding capital stock of Customer has been validly issued, is fully paid and nonassessable.
6.8. No Judgments or Litigation. Except as set forth on Attachment B, no judgments, orders, writs or decrees are outstanding against Customer nor is there now pending or, to the best of Customer's knowledge after due inquiry, threatened, any litigation, contested claim, investigation, arbitration, or governmental proceeding by or against Customer.
6.9. No Defaults. The Customer is not in default under any term of any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it, or any of its properties are bound. Customer has no knowledge of any dispute regarding any such indenture, contract, lease, agreement, instrument or other commitment. No Default or Event of Default has occurred and is continuing.
6.10. Labor Matters. Except as set forth on any notice provided by Customer to IBM Credit pursuant to Section 7.1(G) of this Agreement, the Customer is not a party to any labor dispute. There are no strikes or walkouts or labor controversies pending or threatened against the Customer which could reasonably be expected to have a Material Adverse Effect.
6.11. Compliance with Law. Customer has not violated or failed to comply with any Requirement of Law or any requirement of any self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan", "defined benefit plan", or "multi-employer benefit plan", which Customer has established, maintained, or to which it is required to contribute (collectively, the "Plans") is in compliance with all applicable provisions of ERISA and the Code and the rules and regulations thereunder as well as the Plan's terms and conditions. There have been no "prohibited transactions" and no "reportable event" has occurred within the last 60 months with respect to any Plan. Customer has no "multi-employer benefit plan".
As used in this Agreement the terms "employee benefit plan", "employee pension benefit plan", "defined benefit plan", and "multi-employer benefit plan" have the respective meanings assigned to them in Section 3 of ERISA and any applicable rules and regulations thereunder. The Customer has not incurred any "accumulated funding deficiency" within the meaning of ERISA or incurred any liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection with a Plan (other than for premiums due in the ordinary course).
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 6.13. Compliance with Environmental Laws. Except as otherwise disclosed in Attachment B:
(A) The Customer has obtained all government approvals required with respect to the operation of their businesses under any Environmental Law.
Page 25 of 46
(B) (i) the Customer has not generated, transported or disposed of any Hazardous Substances; (ii) the Customer is not currently generating, transporting or disposing of any Hazardous Substances; (iii) the Customer has no knowledge that (a) any of its real property (whether owned, leased, or otherwise directly or indirectly controlled) has been used for the disposal of or has been contaminated by any Hazardous Substances, or (b) any of its business operations have contaminated lands or waters of others with any Hazardous Substances; (iv) the Customer and its respective assets are not subject to any Environmental Liability and, to the best of the Customer's knowledge, any threatened Environmental Liability; (v) the Customer has not received any notice of or otherwise learned of any governmental investigation evaluating whether any remedial action is necessary to respond to a release or threatened release of any Hazardous Substances for which the Customer may be liable; (vi) the Customer is not in violation of any Environmental Law; (vii) there are no proceedings or investigations pending against Customer with respect to any violation or alleged violation of any Environmental Law; provided however, that the parties acknowledge that any generation, transportation, use, storage and disposal of certain such Hazardous Substances in Customer's or its Subsidiaries' business shall be excluded from representations (i) and (ii) above, provided, further, that Customer is at all times generating, transporting, utilizing, storing and disposing such Hazardous Substances in accordance with all applicable Environmental Laws and in a manner designed to minimize the risk of any spill, contamination, release or discharge of Hazardous Substances other than as authorized by Environmental Laws.
6.14. Intellectual Property. Customer possesses such assets, licenses, patents, patent applications, copyrights, service marks, trademarks, trade names and trade secrets and all rights and other property relating thereto or arising therefrom ("Intellectual Property") as are necessary or advisable to continue to conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in full force and effect all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary for the operation of its businesses as presently conducted. Customer is not in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval.
6.16. Investment Company. The Customer is not (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a holding company, or an Affiliate of a holding company or of a subsidiary of a holding company, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or the Other Documents or to perform its obligations hereunder or thereunder.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Page 26 of 46
6.17. Taxes and Tax Returns. Customer has timely filed all federal, state, and local tax returns and other reports which it is required by law to file, and has either duly paid all taxes, fees and other governmental charges indicated to be due on the basis of such reports and returns or pursuant to any assessment received by the Customer, or made provision for the payment thereof in accordance with GAAP. The charges and reserves on the books of the Customer in respect of taxes or other governmental charges are in accordance with GAAP. No tax liens have been filed against Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by Customer, in the ordinary course of its business; the goods and inventory being sold and the Accounts created are its exclusive property and are not and shall not be subject to any Lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever (other than Permitted Liens). The Customer's customers have accepted goods or services and owe and are obligated to pay the full amounts stated in the invoices according to their terms. There are no proceedings or actions known to Customer which are pending or threatened against any Material Account Debtor (as defined in Section 7.14(B) of this Agreement) of any of the Accounts which could reasonably be expected to result in a Material Adverse Effect on the debtor's ability to pay the full amounts due to Customer.
6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate or Subsidiary of the Customer is a party except (i) in the ordinary course of and pursuant to the reasonable requirements of Customer's business and (ii) upon fair and reasonable terms no less favorable to Customer than it could obtain in a comparable arm's-length transaction with an unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual information furnished by or on behalf of the Customer to IBM Credit or the Auditors for purposes of or in connection with this Agreement or any Other Document, or any transaction contemplated hereby or thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time.
6.21. Recording Taxes. All recording taxes, recording fees, filing fees and other charges payable in connection with the filing and recording of this Agreement have either been paid in full by Customer or arrangements for the payment of such amounts by Customer have been made to the satisfaction of IBM Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted Indebtedness; and (ii) has not guaranteed the obligations of any other Person (except as permitted by Section 8.4).
Page 27 of 46
Section 7. AFFIRMATIVE COVENANTS
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to be furnished to IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days after the end of each fiscal year of Customer (i) audited Financial Statements (provided that, to the extent not otherwise audited by the Auditors, the consolidating Financial Statements may be unaudited) as of the close of the fiscal year and for the fiscal year, together with a comparison to the Financial Statements for the prior year, in each case accompanied by (a) either an opinion of the Auditors without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit or, if so qualified, an opinion which shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such Auditors' "Management Letter" to Customer, if any, (c) a written statement signed by the Auditors stating that in the course of the regular audit of the business of Customer and its consolidated Subsidiaries, which audit was conducted by the Auditors in accordance with generally accepted auditing standards, the Auditors have not obtained any knowledge of the existence of any Default under any provision of this Agreement, or, if such Auditors shall have obtained from such examination any such knowledge, they shall disclose in such written statement the existence of the Default and the nature thereof, it being understood that such Auditors shall have no liability, directly or indirectly, to anyone for failure to obtain knowledge of any such Default; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of Customer and its Subsidiaries for such fiscal year prepared by the chief executive officer or chief financial officer of Customer; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal year, whether Customer is in compliance with the financial covenants set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of Customer (i) Financial Statements as of the end of such period and for the fiscal year to date, together with a comparison to the Financial Statements for the same periods in the prior year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments and except for the absence of footnotes) by the chief executive officer or chief financial officer of Customer as having been prepared in accordance dance with GAAP; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of Customer and its Subsidiaries for such period and for the fiscal year to date prepared by the chief executive officer or chief financial officer of Customer; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal
Page 28 of 46 quarter, whether Customer is in compliance with the financial covenants set forth in Attachment A;
(C) as soon as available and in any event within thirty (30) days after the end of each fiscal month of Customer (i) Financial Statements as of the end of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document such period and for the fiscal year to date, together with a comparison to the Financial Statements for the same periods in the prior year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments and except for the absence of footnotes) by the chief executive officer or chief financial officer of Customer as having been prepared in accordance with GAAP; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of Customer and its Subsidiaries for such period and for the fiscal year to date prepared by the chief executive officer or chief financial officer of Customer; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal month, whether Customer is in compliance with the financial covenants set forth in Attachment A;
(D) as soon as available and in any event within forty-five (45) days after the end of each fiscal year of Customer (i) projected Financial Statements, broken down by quarter, for the current and following fiscal year; and (ii) if composed, a narrative discussion relating to such projected Financial Statements;
(E) as soon as available and in any event within thirty (30) days after the end of each fiscal quarter of Customer, revised projected Financial Statements, broken down by quarter, for (i) the current fiscal year from the beginning of such fiscal quarter to the fiscal year end and (ii) the following fiscal year;
(F) promptly after Customer obtains knowledge of (i) the occurrence of a Default or Event of Default, or (ii) the existence of any condition or event which would result in the Customer's failure to satisfy the conditions precedent to Advances set forth in Section 5, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail;
(G) promptly after Customer obtains knowledge of (i) any proceeding(s) being instituted or threatened to be instituted by or against Customer in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign), or (ii) any actual or prospective change, development or event which, in any such case, has had or could reasonably be expected to have a Material Adverse Effect, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail;
(H) promptly after Customer obtains knowledge that (i) any orders, judgments or decrees which in the aggregate exceed Fifty Thousand Dollars ($50,000.00) shall have been entered against Customer or any of its properties or assets, or (ii) it has received any notification of a
Page 29 of 46 material violation of any Requirement of Law from any Governmental Authority, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail;
(I) promptly after Customer learns of any material labor dispute to which Customer may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Customer is a party or by which it is bound, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail;
(J) within five (5) Business Days after request by IBM Credit, any written certificates, schedules and reports together with all supporting documents as IBM Credit may reasonably request relating to the Collateral or the Customer's or any guarantor's business affairs and financial condition;
(K) by the fifth (5th) Business Day of each month, or as otherwise agreed in writing, a Collateral Management Report as of a date no earlier than the last day of the immediately preceding month;
(L) along with the Financial Statements set forth in Section 7.1(A) and (B); the name, address and phone number of each of its Account debtors' primary contacts for each Account on the Accounts aging report contained in its most recent Collateral Management Report; and
(M) within five (5) days after the same are sent, copies of all financial statements and reports which Customer sends to its stockholders, and within five (5) days after the same are filed, copies of all financial statements and reports which Customer may make to, or file with, the Securities and Exchange Commission or any successor or analogous governmental authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall be signed by an authorized officer of Customer, and which signature shall be deemed a representation and warranty that the information contained in such certificate, schedule or report is true and accurate in all material respects on the date as of which such certificate, schedule or report is made and does not omit to state a material fact necessary in order to make the statements contained therein not misleading at such time. Each financial statement delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods.
7.2 Location of Collateral. The inventory, equipment and other tangible Collateral shall be kept or sold at the addresses as set forth on Attachment B or on any notice provided by Customer to IBM Credit in accordance with Section 7.7(C). Such locations shall be certified quarterly to IBM Credit substantially in the form of Attachment G.
7.3 Changes in Customer. Customer shall provide thirty (30) days prior written notice to IBM Credit of any change in Customer's name,
Page 30 of 46 chief executive office and principal place of business, organization, form of ownership or corporate structure; provided, however, that Customer's compliance with this covenant shall not relieve it of any of its other obligations or any other provisions under this Agreement or any Other Document limiting actions of the type described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence, maintain in full force and effect all licenses, bonds, franchises, leases and qualifications to do business, and all contracts and other rights necessary to the profitable conduct of its business, (B) continue in, and limit its
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document operations to, the same general lines of business as presently conducted by it unless otherwise permitted in writing by IBM Credit and (C) comply with all Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it learns of the occurrence of any event which would constitute a "reportable event" under ERISA or any regulations thereunder with respect to any Plan, or that the PBGC (as defined in Section 6.12 of this Agreement) has instituted or will institute proceedings to terminate any Plan. Notwithstanding the foregoing, the Customer shall have no obligation to notify IBM Credit as to any "reportable event" as to which the 30-day notice requirement of Section 4043(b) has been waived by the PBGC, until such time as such Customer is required to notify the PBGC of such reportable event.
Such notification shall include a certificate of the chief financial officer of Customer setting forth details as to such "reportable event" and the action which Customer proposes to take with respect thereto, together with a copy of any notice of such "reportable event" which may be required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its intent to institute such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause the plan administrator to furnish, to IBM Credit the most recently filed annual report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person under Customer's control (including, without limitation, agents and Affiliates under such control) shall (i) comply with all Environmental Laws in all material respects, and (ii) undertake to use commercially reasonable efforts to prevent any unlawful release of any Hazardous Substance by Customer or such Person into, upon, over or under any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer.
(B) Customer shall notify IBM Credit, promptly upon its obtaining knowledge of (i) any non-routine proceeding or investigation by any Governmental Authority with respect to the presence of any Hazardous Substances on or in any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, (ii) all claims made or threatened by any Person or Governmental Authority against Customer or any of Customer's assets relating to any loss or injury resulting from any Hazardous Substance, (iii) Customer's discovery of evidence of unlawful disposal of or environmental contamination by any Hazardous Substance on any property now or
Page 31 of 46 hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, and (iv) any occurrence or condition which could constitute a violation of any Environmental Law.
7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to maintain books and records pertaining to the Collateral in such detail, form and scope as is consistent with good business practice, and agrees that such books and records will reflect IBM Credit's interest in the Accounts.
(B) Customer agrees that IBM Credit or its agents may enter upon the premises of Customer at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default for the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document purposes of (i) inspecting the Collateral, (ii) inspecting and/or copying (at Customer's expense) any and all records pertaining thereto, (iii) discussing the affairs, finances and business of Customer with any officers, employees and directors of Customer or with the Auditors and (iv) verifying Eligible Accounts and other Collateral. Customer also agrees to provide IBM Credit with such reasonable information and documentation that IBM Credit deems necessary to conduct the foregoing activities, including, without limitation, reasonably requested samplings of purchase orders, invoices and evidences of delivery or other performance.
Upon the occurrence and during the continuance of an Event of Default which has not been waived by IBM Credit in writing, IBM Credit may conduct any of the foregoing activities in any manner that IBM Credit deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice of any change in the location of any Collateral, the location of its books and records or in the location of its chief executive office or place of business from the locations specified in Attachment B, and will execute in advance of such change and cause to be filed and/or delivered to IBM Credit any financing statements, landlord or other lien waivers, or other documents reasonably required by IBM Credit, all in form and substance reasonably satisfactory to IBM Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient detail, of any substantial change relating to the type, quantity or quality of the Collateral, or any event which could reasonably be expected to have a Material Adverse Effect on the value of the Collateral or on the security interests granted to IBM Credit therein.
7.8. Insurance Casualty Loss. (A) Customer agrees to maintain with financially sound and reputable insurance companies: (i) insurance on its properties, (ii) public liability insurance against claims for personal injury or death as a result of the use of any products sold by it and (iii) insurance coverage against other business risks, in each case, in at least such amounts and against at least such risks as are usually and prudently insured against in the same general geographical area by companies of established repute engaged in the same or a similar business. Customer will furnish to IBM Credit, upon its written
Page 32 of 46 request, the insurance certificates with respect to such insurance. In addition, all Policies so maintained are to name IBM Credit as an additional insured as its interest may appear.
(B) Without limiting the generality of the foregoing, Customer shall keep and maintain, at its sole expense, the Collateral insured for an amount not less than the amount set forth on Attachment A from time to time opposite the caption "Collateral Insurance Amount" against all loss or damage under an "all risk" Policy with companies mutually acceptable to IBM Credit and Customer, with a lender's loss payable endorsement or mortgagee clause in form and substance reasonably satisfactory to IBM Credit designating that any loss payable thereunder with respect to such Collateral shall be payable to IBM Credit. Upon receipt of proceeds by IBM Credit the same shall be applied on account of the Customer's Outstanding Product Advances first, then to the Outstanding A/R Advances. Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon the Policy issued by it or by independent instruments furnished
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to IBM Credit at least ten (10) days written notice before any Policy shall be altered or cancelled and that no act or default of Customer or any other person shall affect the right of IBM Credit to recover under the Policies. Customer hereby agrees to direct all insurers under the Policies to pay all proceeds with respect to the Collateral directly to IBM Credit.
If Customer fails to pay any cost, charges or premiums, or if Customer fails to insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit hereunder shall be considered an additional debt owed by Customer to IBM Credit and are due and payable immediately upon receipt of an invoice by IBM Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or assessed against Customer or any of the Collateral before any penalty or interest accrues thereon unless such taxes are being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted and an adequate reserve or other appropriate provisions have been made therefore as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect.
7.10. Compliance With Laws. Customer agrees to comply with all Requirements of Law applicable to the Collateral or any part thereof, or to the operation of its business.
7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year ending December 31 unless Customer provides IBM Credit at least thirty (30) days prior written notice of any change thereof.
7.12. Intellectual Property. Customer shall do and cause to be done all things necessary to preserve and keep in full force and effect all registrations of Intellectual Property which the failure to do or cause to be done could reasonably be expected to have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of its material properties (business and otherwise) in good condition and
Page 33 of 46 repair (ordinary wear and tear excepted) and pay and discharge all costs of repair and maintenance thereof and all rental and mortgage payments and related charges pertaining thereto and not commit or permit any waste with respect to any of its material properties.
7.14. Collateral. Customer shall:
(A) from time to time upon request of IBM Credit, provide IBM Credit with access to copies of all invoices, delivery evidences and other such documents relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to and inform IBM Credit of all material adverse information relating to the financial condition of any Account debtor, other than the government of the United States of America, whose outstanding obligations to Customer constitute five percent (5%) or more of the Accounts at such time (a "Material Account Debtor");
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (C) promptly upon Customer's learning thereof, notify IBM Credit in writing of any event which would cause any obligation of a Material Account Debtor to become an Ineligible Account;
(D) keep all goods rejected or returned by any Account debtor and all goods repossessed or stopped in transit by Customer from any Account debtor segregated from other property of Customer, holding the same in trust for IBM Credit until Customer applies a credit against such Account debtor's outstanding obligations to Customer or sells such goods in the ordinary course of business, whichever occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or hereafter acquired by it in conspicuous type to show that the same are subject to IBM Credit's security interest and immediately thereafter deliver or cause such chattel paper and instruments to be delivered to IBM Credit or any agent designated by IBM Credit with appropriate endorsements and assignments to vest title and possession in IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or damage to any of the Collateral. Customer shall diligently file and prosecute its claim for any award or payment in connection with any such loss, theft, destruction of or damage to Collateral. Customer shall, upon demand of IBM Credit, make, execute and deliver any assignments and other instruments sufficient for the purpose of assigning any such award or payment to IBM Credit, free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform all matters and things necessary or expedient to be observed or performed under or by virtue of any lease, license, concession or franchise forming part of the Collateral in order to preserve, protect and maintain all the rights of IBM Credit thereunder;
Page 34 of 46
(I) consistent with reasonable commercial practice, maintain, use and operate the Collateral and carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Collateral and the earnings, incomes, rents, issues and profits thereof; and
(J) at any time and from time to time, upon the request of IBM Credit, and at the sole expense of Customer, Customer will promptly and duly execute and deliver such further instruments and documents and take such further action as IBM Credit may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests granted herein and the payment of any and all recording taxes and filing fees in connection therewith. IBM Credit shall use its best efforts to provide prior written notice to Customer if the filing of any such instrument, document or financing statement is expected to result in any expense to Customer.
7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer become parties to this Agreement or any other agreement executed in connection
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document with this Agreement as guarantors or sureties. Customer will comply, and cause all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement, as if such sections applied directly to such Subsidiaries.
7.16. Financial Covenants; Additional Covenants. Customer acknowledges and agrees that Customer shall at all times maintain the financial covenants and other covenants set forth in the attachments, exhibits and other addenda incorporated in this Agreement.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations due hereunder:
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign, pledge, transfer, create, incur, assume, permit to exist or otherwise permit any Lien or judgment to exist on any of its property, assets, revenues or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or indirectly, sell, lease, assign, transfer or otherwise dispose of any assets other than (i) sales of inventory in the ordinary course of business and short term rental of inventory as demonstrations in amounts not material to Customer, and (ii) voluntary dispositions of individual assets and obsolete or worn out property in the ordinary course of business, provided, that the aggregate book value of all such assets and property so sold or disposed of under this section 8.2 (ii) in any fiscal year shall not exceed 5% of the consolidated assets of the Customer as of the beginning of such fiscal year.
8.3. Corporate Changes. The Customer will not, without the prior written consent of IBM Credit, directly or indirectly, merge,
Page 35 of 46 consolidate, liquidate, dissolve or enter into or engage in any operation or activity materially different from that presently being conducted by Customer.
8.4. Guaranties. The Customer will not, without the prior written consent of IBM Credit, directly or indirectly, assume, guaranty, endorse, or otherwise become liable upon the obligations of any other Person, except (i) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) by the giving of indemnities in connection with the sale of inventory or other asset dispositions permitted hereunder, and (iii) for guaranties in favor of IBM Credit.
8.5. Restricted Payments. The Customer will not, directly or indirectly: (i) declare or pay any dividend (other than dividends payable solely in common stock of Customer) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of Customer or any warrants, options or rights to purchase any such capital stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Customer; or (ii) make any optional payment or prepayment on or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than the Obligations).
8.6. Investments. The Customer will not, directly or indirectly, make, maintain or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar federal insurance program;
(B) direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations guaranteed as to principal and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement of claims against others by reason of an event of bankruptcy or a composition or the readjustment of debt or a reorganization of any debtor of Customer; and
(D) commercial paper of any corporation organized under the laws of any State of the United States or any bank organized or licensed to conduct a banking business under the laws of the United States or any State thereof having the short-term highest rating then given by Moody's Investor's Services, Inc. or Standard & Poor's Corporation.
8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or indirectly, enter into any transaction with any Affiliate or Subsidiary, including, without limitation, the purchase, sale or exchange of property or the rendering of any service to any Affiliate or Subsidiary of Customer except in the ordinary course of business and
Page 36 of 46 pursuant to the reasonable requirements of Customer's business upon fair and reasonable terms no less favorable to customer than could be obtained in a comparable arm's-length transaction with an unaffiliated Person.
8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a material liability to the PBGC (as defined in Section 6.12 of this Agreement), (B) permit any "prohibited transaction" involving any Plan (other than a "multi- employer benefit plan") which would subject the Customer to a material tax or penalty on "prohibited transactions" under the Code or ERISA, (C) fail to pay to any Plan any contribution which they are obligated to pay under the terms of such Plan, if such failure would result in a material "accumulated funding deficiency", whether or not waived, (D) allow or suffer to exist any occurrence and during the continuance of a "reportable event" or any other event or condition, which presents a material risk of termination by the PBGC (as defined in Section 6.12 of this Agreement) of any Plan (other than a "multi-employer benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As used in this Agreement, the terms "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in the Code and ERISA. For purposes of this Section 8.8, the terms material liability, tax, penalty, accumulated funding deficiency and risk of termination shall mean a liability, tax, penalty, accumulated funding deficiency or risk of termination which could reasonably be expected to have a Material Adverse Effect.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 8.9. Additional Negative Pledges. Customer will not, directly or indirectly, create or otherwise cause or permit to exist or become effective any contractual obligation which may restrict or inhibit IBM Credit's rights or ability to sell or otherwise dispose of the Collateral or any part thereof after the occurrence and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not be stored with a bailee, warehouseman or similar party without the prior written consent of IBM Credit unless Customer will, concurrently with the delivery of such Collateral to such party, cause such party to issue and deliver to IBM Credit, warehouse receipts in the name of IBM Credit evidencing the storage of such Collateral.
8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds of any Advances other than to acquire Products from Authorized Suppliers and for its general working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, which would affect IBM Credit's ability to collect payment on any Account in whole or in part, except for such extensions, compromises or settlements made by Customer in the ordinary course of its business, provided, however, that the aggregate amount of such extensions, compromises or settlements does not exceed five percent (5%) of the Customer's Accounts at any time.
Page 37 of 46
8.13. Indebtedness. The Customer will not create, incur, assume or permit to exist any Indebtedness, except for Permitted Indebtedness.
8.14. Loans. The Customer will not make any loans, advances, contributions or payments of money or goods to any Subsidiary, Affiliate or parent corporation or to any officer, director or stockholder of Customer or of any such corporation (except for compensation for personal services actually rendered), except for transactions expressly authorized in this Agreement.
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events shall constitute an Event of Default by the Customer under this Agreement and the Other Documents:
(A) The failure to make timely payment of the Obligations or any part thereof when due and payable;
(B) Customer fails to comply with or observe any term, covenant or agreement contained in this Agreement or any Other Documents;
(C) Any representation, warranty, statement, report or certificate made or delivered by or on behalf of Customer or any of its officers, employees or agents or by or on behalf of any guarantor to IBM Credit was false in any material respect at the time when made or deemed made;
(D) The occurrence of any event or circumstance which could reasonably be
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document expected to have a Material Adverse Effect;
(E) Customer, any Subsidiary or any guarantor shall generally not pay its debts as such debts become due, become or otherwise declare itself insolvent, file a voluntary petition for bankruptcy protection, have filed against it any involuntary bankruptcy petition, cease to do business as a going concern, make any assignment for the benefit of creditors, or a custodian, receiver, trustee, liquidator, administrator or person with similar powers shall be appointed for Customer, any Subsidiary or any guarantor or any of its respective properties or have any of respective properties seized or attached, or take any action to authorize, or for the purpose of effectuating, the foregoing, provided, however, that Customer, any Subsidiary or any guarantor shall have a period of forty-five (45) days within which to discharge any involuntary petition for bankruptcy or similar proceeding;
(F) The use of any funds borrowed from IBM Credit under this Agreement for any purpose other than as provided in this Agreement;
(G) The entry of any judgment against Customer or any guarantor in an amount in excess of $250,000 and such judgment is not satisfied, dismissed, stayed or superseded by bond within thirty (30) days after the day of entry thereof (and in the event of a stay or {superseded} bond, such judgment is not discharged within thirty (30) days after termination of any such stay or bond) or such judgment is not fully
Page 38 of 46 covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full;
(H) The dissolution or liquidation of Customer or any guarantor, or Customer or any guarantor or its directors or stockholders shall take any action to dissolve or liquidate Customer or any guarantor;
(I) Any "going concern" or like qualification or exception, or qualification arising out of the scope of an audit by an Auditor of his opinion relative to any Financial Statement delivered to IBM Credit under this Agreement;
(J) There issues a warrant of distress for any rent or taxes with respect to any premises occupied by Customer in or upon which the Collateral, or any part thereof, may at any time be situated and such warrant shall continue for a period of ten (10) Business Days from the date such warrant is issued;
(K) Customer suspends business;
(L) The occurrence of any event or condition which enables the holder of any Indebtedness arising in one or more related or unrelated transactions to accelerate the maturity thereof or the failure of Customer to pay when due any such Indebtedness;
(M) Any guaranty of any or all of the Customer's Obligations executed by any guarantor in favor of IBM Credit, shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction or the validity or enforceability thereof shall be contested or denied by any such guarantor, or any such guarantor shall deny that
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document it has any further liability or obligation thereunder or any such guarantor shall fail to comply with or observe any of the terms, provisions or conditions contained in any such guaranty;
(N) Customer is in default under the material terms of any of the Other Documents after the expiration of any applicable cure periods;
(O) There shall occur a "reportable event" with respect to any Plan, or any Plan shall be subject to termination proceedings (whether voluntary or involuntary) and there shall result from such "reportable event" or termination proceedings a liability of Customer to the PBGC which in the reasonable opinion of IBM Credit will have a Material Adverse Effect;
(P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange Act of {1934}, as amended) acquires a beneficial interest in 50% or more of the Voting Stock of Customer.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event of Default which has not been waived in writing by IBM Credit, IBM Credit may, in it sole discretion, take any or all of the following actions, without prejudice to any other rights it may have at law or under this Agreement to enforce its claims against the Customer: (a) declare its Obligations to be immediately due and payable (except with
Page 39 of 46 respect to any Event of Default set forth in Section 9.1(E) hereof, in which case all Obligations shall automatically become immediately due and payable without the necessity of any notice or other demand) without presentment, demand, protest or any other action or obligation of IBM Credit; and
(b) immediately terminate the Credit Line hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit may exercise all rights and remedies of a secured party under the U.C.C. Without limiting the generality of the foregoing, IBM Credit may: (i) remove from any premises where same may be located any and all documents, instruments, files and records (including the copying of any computer records), and any receptacles or cabinets containing same, relating to the Accounts, or IBM Credit may use (at the expense of the Customer) such of the supplies or space of the Customer at Customer's place of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit and generally shall have all other rights respecting said Accounts, including without limitation the right to accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credit in the name of the Customer or IBM Credit;
(iii) sell, assign and deliver the Accounts and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at IBM Credit's sole option and discretion, and IBM Credit may bid or become a purchaser at any such sale; and (iv) foreclose the security interests created pursuant to this Agreement by any available judicial procedure, or to take possession of any or all of the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Collateral without judicial process and to enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same.
(B) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, in the name of Customer or IBM Credit, or in the name of such other party as IBM Credit may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as IBM Credit in its sole discretion may deem advisable, and IBM Credit shall have the right to purchase at any such sale. If IBM Credit, in its sole discretion may deem advisable, and IBM Credit shall have the right to purchase at any such sale. If IBM Credit, in its sole discretion determines that any of the Collateral requires rebuilding, repairing, maintenance or preparation, IBM Credit shall have the right, at its option, to do such of the aforesaid as it deems necessary for the purpose of putting such Collateral in such salable form as IBM Credit shall deem appropriate. The Customer hereby agrees that any disposition by IBM Credit of any Collateral pursuant to and in accordance with the terms of a repurchase agreement between IBM Credit and the manufacturer or any supplier (including any Authorized Supplier) of such Collateral
Page 40 of 46 constitutes a commercially reasonable sale. The Customer agrees, at the request of IBM Credit, to assemble the Collateral and to make it available to IBM Credit at places which IBM Credit shall select, whether at the premises of the Customer or elsewhere, and to make available to IBM Credit the premises and facilities of the Customer for the purpose of IBM Credit's taking possession of, removing or putting such Collateral in salable form. If notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) Business Days notice shall constitute reasonable notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit is hereby granted, upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, an irrevocable, non-exclusive license to use, assign, license or sublicense all computer software programs, data bases, processes and materials used by the Customer in its businesses or in connection with any of the Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any of the foregoing rights (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied by IBM Credit to the payment of Customer's Obligations, whether due or to become due, in such order as IBM Credit may in it sole discretion elect. Customer shall remain liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer or its successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral by any court process Customer hereby irrevocably waives to the extent permitted
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document by applicable law any bonds, surety and security relating thereto required by any statute, court rule or otherwise as an incident to such possession and any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof. In addition, Customer waives to the extent permitted by applicable law all rights of set-off it may have against IBM Credit. Customer further waives to the extent permitted by applicable law presentment, demand and protest, and notices of non-payment, non-performance, any right of contribution, dishonor, and any other demands, and notices required by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the earlier of (i) the Termination Date, (ii) the date specified in a written notice by the Customer that they intend to terminate this Agreement which date shall be no less than ninety (90) days following the receipt by IBM Credit of such written notice, and (iii) termination by IBM Credit after the occurrence and during the continuance of any Event of Default. Upon the date that this Agreement is terminated, all of Customer's Obligations shall be immediately due and payable in their entirety, even if they are not yet due under their terms.
Page 41 of 46
(B) Until the indefeasible payment in full of all of Customer's Obligations, no termination of this Agreement or any of the Other Documents shall in any way affect or impair (i) Customer's Obligations to IBM Credit including, without limitation, any transaction or event occurring prior to and after such termination, or (ii) IBM Credit's rights hereunder, including, without limitation IBM Credit's security interest in the Collateral. On and after a Termination Date, IBM Credit may, but shall not be obligated to, upon request of Customer, continue to provide Advances hereunder.
10.2. Indemnification. The Customer hereby agrees to indemnify and hold harmless IBM Credit and each of its officers, directors, agents and assigns (collectively, the "Indemnified Persons") against all losses, claims, damages, liabilities or other expenses (including reasonable attorneys' fees and court costs now or hereinafter arising from the enforcement of this Agreement, the "Losses") to which any of them may become subject insofar as such Losses arise out of or are based upon any event, circumstance or condition (a) occurring or existing on or before the date of this Agreement relating to any financing arrangements IBM Credit may from time to time have with (i) Customer, (ii) any Person that shall be acquired by Customer or (iii) any Person that Customer may acquire all or substantially all of the assets of, or (b) directly or indirectly, relating to the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby or thereby or to any of the Collateral or to any act or omission of the Customer in connection therewith. Notwithstanding the foregoing, the Customer shall not be obligated to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of IBM Credit's gross negligence or willful misconduct. The indemnity provided herein shall survive the termination of this Agreement.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any Obligation or Default of the Customer, may perform any Obligations of the Customer that the Customer shall fail or refuse to perform and IBM Credit may, at any time or times hereafter, but shall be under no obligation so to do, pay, acquire or accept any assignment of any security interest, lien, encumbrance or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document claim against the Collateral asserted by any person. All sums paid by IBM Credit in performing in satisfaction or on account of the foregoing and any expenses, including reasonable attorney's fees, court costs, and other charges relating thereto, shall be a part of the Obligations, payable on demand and secured by the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT, ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5 Alteration Waiver. This Agreement and the Other Documents may not be altered or amended except by an agreement in writing signed by
Page 42 of 46
the Customer and by IBM Credit. No delay or omission of IBM Credit to exercise any right or remedy hereunder, whether before or after the occurrence of any Event of Default, shall impair any such right or remedy or shall operate as a waiver thereof or as a waiver of any such Event of Default. In the event that IBM Credit at any time or from time to time dispenses with any one or more of the requirements specified in this Agreement or any of the Other Documents, such dispensation may be revoked by IBM Credit at any time and shall not be deemed to constitute a waiver of any such requirement subsequent thereto. IBM Credit's failure at any time or times to require strict compliance and performance by the Customer of any undertakings, agreements, covenants, warranties and representations of this Agreement or any Other Document shall not waive, affect or diminish any right of IBM Credit thereafter to demand strict compliance and performance thereof. Any waiver by IBM Credit of any Default by the Customer under this Agreement or any of the Other Documents shall not waive or affect any other Default by the Customer under this Agreement or any of the Other Documents, whether such Default is prior or subsequent to such other Default and whether of the same or a different type. None of the undertakings, agreements, warranties, covenants, and representations of the Customer contained in this Agreement or the Other Documents and no Default by the Customer shall be deemed waived by IBM Credit unless such waiver is in writing signed by an authorized representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Documents or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Agreement and the Other Documents and the application of such provision to other Persons or circumstances will not be affected thereby, the provisions of this Agreement and the Other Documents being severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter made by IBM Credit to the Customer under this Agreement or the Other Documents shall constitute one loan secured by IBM Credit's security interests in the Collateral and by all other security interests, liens and encumbrances heretofore, now or from time to time hereafter granted by the Customer to IBM Credit or any assignor of IBM Credit.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.8. Additional Collateral. All monies, reserves and proceeds received or collected by IBM Credit with respect to Accounts and other property of the Customer in possession of IBM Credit at any time or times hereafter are hereby pledged by Customer to IBM Credit as security for the payment of Customer's Obligations and shall be applied promptly by IBM Credit on account of the Customer's Obligations; provided, however, IBM Credit may release to the Customer such portions of such monies, reserves and proceeds as IBM Credit may from time to time determine, in its sole discretion.
10.9. No Merger or Novations. A) Notwithstanding anything contained in any document to the contrary, it is understood and agreed by the Customer and IBM Credit that the claims of IBM Credit arising hereunder and existing as of the date hereof constitute continuing claims arising out of the Obligations of Customer under the Financing Agreement and any Other Document. Customer acknowledges and agrees that such Obligations
Page 43 of 46 outstanding as of the date hereof have not been satisfied or discharged and that this Agreement is not intended to effect a novation of the Customer's Obligations under the Financing Agreement or any Other Document.
(B) Neither the obtaining of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the Obligations of the Customer to IBM Credit secured by this Agreement and shall not operate as a merger of any covenant in this Agreement, and the acceptance of any payment or alternate security shall not constitute or create a novation and the obtaining of a judgment or judgments under a covenant herein contained shall not operate as a merger of that covenant or affect IBM Credit's rights under this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the Other Documents are for convenience only and do not define or limit the contents of any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other Documents shall be binding upon and inure to the benefit of IBM Credit and the Customer and their respective successors and assigns; provided, that the Customer shall have no right to assign this Agreement or any of the Other Documents without the prior written consent of IBM Credit.
10.12. Notices. Except as otherwise expressly provided in this Agreement, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (A) upon receipt if deposited in the United States mails, first class mail, with proper postage prepaid, (B) upon receipt of confirmation or answerback if sent by telecopy, or other similar facsimile transmission, (C) one Business Day after deposit with a reputable overnight courier with all charges prepaid, or (D) when delivered, if hand-delivered by messenger, all of which shall be properly addressed to the party to be notified and sent to the address or number indicated as follows:
(i) If to IBM Credit at: IBM Credit Corporation 1500 RiverEdge Parkway Atlanta, GA 30328 Attention: Remarketer Finance Center Manager
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Telecopy: (770) 644-4826
(ii) If to Customer at: Pulsar Data Systems, Incorporated 4500 Forbes Boulevard Lanham, MD 20706 Attention: Mr. John Shutz Telecopy: (301) 459-9353 or to such other address or number as each party designates to the other in the manner prescribed herein.
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10.13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument.
10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Financing Period set forth in Attachment A from time to time if on at least two occasions during any three-month period a Shortfall Amount has become due and payable and may modify the Collateral Insurance Amount set forth in Attachment A from time to time, in each case, by providing Customer with a new Attachment A. Any such new Attachment A shall be effective as of the date specified in the new Attachment A.
10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, OR FOR THE RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.
10.17. Additional Provision. In the event that any conflict arises between this Agreement and that certain Forbearance Agreement dated August 8, 1997 by and among Customer, IBM Credit, Lillian Davis and William W. Davis, Sr. (the "Forbearance Agreement"), the Forbearance Agreement, while it remains in effect, shall govern provided however,
45 of 46 that the occurance of any event that causes a termination of the Forbearance Agreement shall create an Event of Default under this Agreement.
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused its authorized representatives to execute this Agreement and has caused its corporate seal to be affixed hereto as of the date first written above.
PULSAR DATA SYSTEMS, INCORPORATED
By: /s/ William W. Davis, Sr. ------
Print Name: William W. Davis, Sr. ------PRESIDENT/CEO
Title:______
ACCEPTED this ______day of ______, 1997:
IBM CREDIT CORPORATION
By:______
Print Name:______
Title:______
Page 46 of 46
ATTACHMENT A, EFFECTIVE DATE OCTOBER 15, 1997 ("IWCF ATTACHMENT A") TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") DATED AUGUST 9, 1989
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CUSTOMER: PULSAR DATA SYSTEMS, INCORPORATED
I. Fees, Rates and Repayment Terms:
(A) Credit Line: THIRTY FIVE MILLION DOLLARS ($35,000,000.00);
(B) Borrowing Base:
(i) 85% of the amount of the Customer's Eligible Accounts as of the date of determination as reflected in the Customer's most recent Collateral Management Report;
(ii) 100% of the Customer's inventory in the Customer's possession as of the date of determination as reflected in the Customer's most recent Collateral Management Report constituting Products (other than service parts) financed through a Product Advance by IBM Credit, provided, however, IBM Credit has a first priority security interest in such Products and such Products are in new and in un-opened boxes. The value to be assigned to such inventory shall be based upon the Authorized Supplier's invoice price to Customer for Products net of all applicable price reduction credits.
(C) Product Financing Charge: Prime Rate Plus 1.75%
(D) Product Financing Period: 150 Days
(E) Collateral Insurance Amount: Seventeen Million five hundred Thousand Dollars ($17,500,000.00)
Page 1 of 21
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (Continued):
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 2.00%
(ii) WCO Advance Charge: Prime Rate plus 1.75%
(G) Delinquency Fee Rate: Prime Rate plus 6.500%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
(I) Free Financing Period Exclusion Fee: Product Advance multiplied by 0.40%
(J) Other Charges:
(i) Application Processing Fee: $ 0.00 (ii) Monthly Service Fee: $1,000.00 (iii) Closing Fee: $ 0.00
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (iv) Commitment Fee: $ 0.00
Page 2 of 21
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be maintained at the following Bank(s):
Name Of Bank: Nationsbank, N.A.
Address: 8300 Greensboro Drive, Suite 550 McLean, VA 22102-3604
Phone: ______
Lockbox Address: P.O. Box 630037 Baltimore, MD 21263-0037
Special Account #: 3933900355
Name of Bank: ______
Address: ______
______
Phone: ______
Lockbox Address: ______
Special Account #:______
Name of Bank: ______
Address: ______
______
Phone: ______
Lockbox Address: ______
Special Account: ______
Name of Bank: ______
Address: ______
______
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Phone: ______
Lockbox Address: ______
Special Account: ______
Page 3 of 21
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in this Attachment A. All amounts shall be determined in accordance with generally accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or current transactions that require settlement within the on-going twelve month period. All indebtedness to IBM Credit shall be considered a Current Liability for purposes of determining compliance with the Financial Covenants.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be converted to cash. They are divided into four categories: tangible assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature more than twelve months from the date of determination, or mature within twelve months from such date but are renewable or extendible at the option of the debtor to a date more than twelve months from the date of determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or services transferred by an enterprise to its customers for which said customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to third parties as evidenced by an executed Notes Payable Subordination Agreement in favor of IBM Credit.
Page 4 of 21
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses, deferred charges, research and development expenses, software development costs, leasehold expenses, trademarks, trade names, copyrights, patents, patent applications, privileges, franchises, licenses and rights in any thereof, and other similar intangibles (but not including contract rights) and other current and non-current assets as identified in Customer's financial statements; and
(b) all accounts receivable from employees, officers, directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term Assets.
Total Liabilities shall mean the Current Liabilities and Long Term Debt less Subordinated Debt, resulting from past or current transactions, that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
Page 5 of 21
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios, percentages and amounts as of the last day of the fiscal period under review by IBM Credit:
a) Revenue on an annual basis (i.e., the current fiscal year-to-date Revenue annualized) to Working Capital ratio greater than zero and equal to or less than 30.0:1.0 at 09/30/97, 28.0:1.0 at 12/31/97 and 27.0 at 03/31/98.
c) Net Profit after Tax to Revenue percentage equal to or greater than -1.0 at 9/30/97, 0.0 percent at 12/31/97 and 0.5 percent at 03/31/98.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document d) Total Liabilities to Tangible Net Worth ratio greater than zero and equal to or less than 17.0 at 9/31/97, 15.0:1.0 at 12/31/97 and 14.0:1.0 at 03/31/98.
Page 6 of 21
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the Agreement:
. Executed Contingent Blocked Account Amendment;
. Executed guaranty of any shareholder(s) owning ten (10) percent or more of the equity of Customer. Customer shall cause guarantor(s) to submit a personal financial statement upon the request of IBM Credit;
. Executed Waiver of Landlord Lien for all premises in which a landlord has the right of levy for rent;
. Fiscal year-end financial statements of Customer as of December 31, 1997 audited by an independent certified public accountant and delivered to IBM Credit no later than March 31, 1998;
. A Certificate of Location of Collateral whereby the Customer certifies where Customer presently keeps or sells inventory, equipment and other tangible Collateral;
. Subordination or Intercreditor Agreements from all creditors having a lien which is superior to IBM Credit in any assets that IBM Credit relies on to satisfy Customer's obligations to IBM Credit.
Page 7 of 21
IWCF ATTACHMENT A TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the Agreement (continued):
. A Compliance Certificate as to Customer s compliance with the financial covenants set forth in Attachment A as of the last fiscal month of Customer for which financial statements have been published;
. An Opinion of Counsel substantially in the form and substance of Attachment H whereby the Customer's counsel states his or her opinion about the execution, delivery and performance of the Agreement and other documents by the Customer;
. Termination or release of Uniform Commercial Code filing by another creditor as required by IBM Credit;
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document . A copy of an all-risk insurance certificate pursuant to Section 7.8 (B) of the Agreement;
Page 8 of 21
IWCF ATTACHMENT B TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
I. Liens. Wilmington Trust Co.
II. Locations of Offices. Records and Inventory
A) 4500 Forbes Blvd. Lanham, MD 20706 CEO: William W. Davis
B)
Location of Assets, Inventory and Equipment (including warehouses)
Location Leased (Y/N)
4500 Forbes Blvd., Lanham, MD 20706 YES 4611 Assembly Drive Suite N Lanham, MD 20706 YES
III. Fictitious Names. None
IV. Organization.
A) Subsidiaries
None
Name Jurisdiction Owner Percent Owned
B) Affiliates
None
Name Capacity
Page 10 of 21
IWCF ATTACHMENT C INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
COMPLIANCE CERTIFICATE
TO: IBM CREDIT CORPORATION (INSERT RFC ADDRESS)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The undersigned authorized officers of ______("______"), hereby certify on behalf of the Customer, with respect to the Inventory and Working Capital Financing Agreement executed by and between ______and IBM Credit Corporation ("IBM Credit") on ______, 19__, as amended from time to time (the "Agreement"), that (A) ______has been in compliance for the period from ______, 19__ to ______, 19__ with the financial covenants set forth in Attachment A to the Agreement, as demonstrated below, and (B) no Default has occurred and is continuing as of the date hereof, except, in either case, as set forth below. All capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Agreement.
I. Financial Covenants
FINANCIAL COVENANTS REQUIRED ACTUAL
Annualized Revenue to Working Capital
Current Assets to Current Liabilities
Net Profit After Tax to Revenue
Total Liabilities to Tangible Net Worth
Tangible Net Worth
Page 11 of 21
IWCF ATTACHMENT C INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Calculation of Tangible Net Worth.
Total Assets MINUS Total Liabilities ______
LESS:
goodwill ______
organizational expenses ______
pre-paid expenses ______
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document deferred charges, etc. ______
leasehold expenses ______
all other ______
callable/redeemable preferred stock ______
officer, employee, director, stockholder ______and affiliate receivables
Total Tangible Net Worth ======
Attached hereto are Financial Statements as of and for the end of the fiscal ______ended on the applicable date, as required by Section 7.1 of the Inventory and Working Capital Financing Agreement.
Submitted by:
______(Customer Name)
By: ______
Print Name: ______
Title: ______
Page 12 of 21
IWCF ATTACHMENT E TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
Pulsar Data Systems, Incorporated
AUTHORIZED SUPPLIERS
Access Graphics Almo Ashton-Tate (AST) Cannon Cabletron Systems, Inc. Compaq Comstor Comtech Micro Systems, Inc. Digital Dell Computer Systems Diamond Flower Electric Dolch American Instruments, Inc. Decision Support Systems, Inc. First Source International
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Gates Graphic Technologies Ingram Alliance Int'l Computer Graphics, Inc. Inacom Ingram Lexmark Matrix Marketing, Inc. Megahertz Merisel Microage Memory products and More NCR Corporation Nippon Electric Company (NEC) International Business Machines (IBM) IMB Personal Computer Company (PCC) Powerstar, Inc. Procom Technology PC Wholesale QMS Robec SDI Southern Electronics Corp. (SED) Simple Technology Sony Southland Micro Systems Storage Dimensions Sun Microsystems Tech Data Toshiba Viking Components, Inc. Zenith Data Systems
Page 13 of 21
IWCF ATTACHMENT G TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
CERTIFICATE OF LOCATION OF COLLATERAL
The undersigned, the Chief Executive Officer of Pulsar Data Systems, hereby certifies with reference to the Inventory and Working Capital Financing Agreement, dated October 19. 1997, between Pulsar Data Systems and IBM Credit Corporation as follows: a) The following are all the locations where Pulsar Data Systems presently keeps or sells inventory, equipment or other tangible Collateral:
LOCATION LEASE (YES/NO)
4500 Forbes Blvd, Lanham, MD 20706 YES
4611 Assembly Drive Suite N, Lanham, MD 20706 YES
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document IN WITNESS WHEREOF. I HAVE HEREUNTO SET MY HAND THIS DAY OF ______, 19____.
______(Customer Name)
By: /s/ William W. Davis, Sr.
Title: WILLIAM W. DAVIS, SR. PRESIDENT/CEO
Page 14 of 21
ATTACHMENT H
Technology Management Services
Pulsar(TM) Data Systems, Inc.
October 24, 1997
IBM Credit Corporation 1500 River Edge Parkway Atlanta, GA 30328
Re: Pulsar Data Systems, Inc. Inventory and Working Capital Financing Agreement
Ladies and Gentlemen:
We have acted as counsel for Pulsar Data Systems, Incorporated, a Delaware corporation (the "Borrower") in connection with the exception and delivery of that certain Inventory and Working Capital Financing Agreement, dated as of October 24, 1997 (the "Financing Agreement"), by and among the Borrower and IBM Credit Corporation ("IBM Credit"), and the other agreements, instruments, and documents executed and delivered by the Borrower in connection with the Financing Agreement. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Financing Agreement.
In this connection, we have examined the following document:
(i) The Certificate of Incorporation of the By-laws of the Borrower, each as amended to date;
(i) The records of the proceedings taken by the Board of Directors of the Borrower in connection with the execution, delivery, and performance of the Financing Documents to which they are a party (as defined below);
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Corporate Headquarters 4500 Forbes Blvd., Suite 400 Lanham, MD 20706 301/459-2650 Voice 301/459-2654 FAX http://www.pulsardata.com
Page 15 of 21
IBM Credit Corporation June 27, 1997 Page Two
(iii) The Financing Agreement;
(iv) The contingent Blocked Account Amendment;
(v) Acknowledgment copies of the UCC-1 Financing Statements listed on Exhibit A hereto (the "Financing Statements") executed by the Borrower naming it as Debtor and IBM Credit as Secured Party and filed in the offices set forth on Exhibit A;
The documents referred to in clauses (iii) through (vi) above are hereinafter referred to as the Financing Documents.
In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original copies, and the authenticity of the originals of such latter documents, and, regarding documents executed by parties other than the Borrower, that those parties had the power and the capacity to enter into, execute, delivery and perform all obligations under such documents, the due authorization of all requisite action with respect to such documents, and the validity and binding effect of such documents upon such other parties.
As to any facts material to this opinion, we have relied upon the representations and warranties of the Borrower contained in each of the Financing Documents, and in certificates delivered by the Borrower pursuant to each of the Financing Documents, statements, and representations of officers and other representatives of the Borrower, and, as to the matters addressed therein, certificates or correspondence from public officials. For purposes of the opinion set forth in Paragraph 4, the term "Material Contracts" means the agreements and instruments to which the Borrower is subject which have been identified to us by officers of the Borrower and set forth on Exhibit B hereto as the agreements and instruments which are material to the business or financial condition of the Borrower: and the term "Material Orders" means those orders and decrees to which the Borrower is subject which have
Page 16 of 21
IBM Credit Corporation June 27, 1997 Page Three
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document been identified to us by officers of the Borrower and set forth in Exhibit C hereto as the orders and decrees, agreements, and instruments which are material to the business or financial condition of the Borrower.
As used herein, the term "UCC" refers to the Uniform commercial Code as in effect in the State of New York.
We are members of the bar in the State of Maryland and Pennsylvania and express no opinion as to the laws of any other jurisdiction except the General Corporation Law of the State of Maryland and the federal laws of the United States of America.
Based on the foregoing, and subject to the assumptions and qualifications set forth herein, we are of the opinion that:
1. Borrower by July 10, 1997 will be a corporation duly organized, validity existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified and authorized to do business and in good standing as a foreign corporation in each jurisdiction where, to our knowledge, it presently is engaged in business and is required to be qualified.
2. Borrower has all or will have all the requisite corporate power and authority (a) to own, lease, and operate its properties and assets and to carry on its business as now being conducted; and (b) to execute, delivery, and performance of the Financing Documents to which it is a party.
3. All corporate action on the part of the Borrower requisite for the execution, delivery, and performance of the Financing Documents to which it is party will be duly taken.
4. The execution, delivery, and performance by the Borrower of the Financing Documents to which it is a party will not (a) violate, be in conflict with, result in the breach of, or constitute (with due notice or
Page 17 of 21
IBM Credit Corporation June 27, 1997 Page Four lapse of time, or both) a default under (I) the Certificate of Incorporation or By-laws of Borrower or any resolution of its Board of Directors or any committee thereof, (ii) any Material Contract, or (iii) any federal or state law (including, without limitation, environmental or occupational health, and safety law), regulation, rule, Material Order, or legal requirement of any federal, state, or public authority or agency applicable to Borrower; or (b) result in the creation or imposition of a lien of any nature whatsoever upon any of the Borrower's property or assets other than as represented by the Financing Documents.
5. Borrower has obtained any and all consents, approvals, or other authorizations required to be obtained pursuant to its Certificate of Incorporation and By-laws in connection with the execution, delivery, and performance of the Financing Documents. No consent, approval, or authorization of or by any court, administrative agency, other governmental authority, or any
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document other Person is required in connection with the execution, delivery, and performance by the Borrower of the Financing Documents that has not already been obtained.
6. To our knowledge, there are no actions, proceedings, or investigations pending or threatened against the Borrower which question the validity of the Financing Documents to which it is a party or relating the transactions contemplated thereby, except for those investigations which IBM Credit has knowledge of by full disclosure of the Borrower.
7. Each of the Financing Documents has been duly executed and delivered by duly authorized officer of the Borrower and constitutes the legal, valid, binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except that, in each case, (I) enforcement may be subject to and limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws now or hereafter in effect relating to creditors' rights generally, (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. and (iii) certain of the
Page 18 of 21
IBM Credit Corporation June 27, 1997 Page Five remedial provisions including waivers with respect to the exercise of remedies against the Collateral contained in the Financing Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Financing Documents, each taken as a whole and, the Financing Documents, each taken as a whole, contain adequate remedial provisions for the practical realization of the security purported to be afforded thereby.
8. The Financing Agreement is effective to create in favor of IBM Credit a valid security interest within the meaning of the UCC in the Collateral as security for the obligations purported to be secured thereby; and (ii) the Financing Statements are in appropriate form and have been duly filed resulting in a perfected security interest (as such term is defined in Section 9-303 of the UCC) of IBM Credit in the Collateral in which security interests to which Article 9 of the UCC applies.
9. Borrower is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.
This opinion is rendered solely to and for the benefit of IBM Credit in connection with the execution and delivery of the Financing Documents and may not be relied upon by any other person, firm, or corporation without our prior written consent, except that it may be furnished to any prospective purchaser of a participation in the rights of IBM Credit and may be furnished to an relied upon by any Person which hereafter acquires such a participation.
This opinion is limited to laws as currently in effect on the date hereto
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and the facts as they currently exist. We assume no obligation to revise, supplement or otherwise update this opinion.
Very truly yours,
/s/ Christopher R. Locke
Christopher R. Locke
Page 19 of 21
ATTACHMENT I
CORPORATE SECRETARY'S CERTIFICATE AS TO RESOLUTIONS AUTHORIZING BORROWING BY CORPORATION
IBM CREDIT CORPORATION
______
______
______
I, Lillian Davis, certify that I am the Secretary of Pulsar Data Systems ("Customer") and that I am custodian of the Customer's organizational books and records, including the minutes of the meetings of the Customer's Board of Directors. I further certify as follows:
1. Customer is a corporation organized under the laws of the State of Delaware, and has its principal place of business at 4500 Forbes Blvd., Lanham, MD 20706.
2. Customer is registered to conduct business or as otherwise required in the following states and localities:
______
______
3. True and complete copies of the Customer's Articles of Incorporation and By-laws ("Governing Documents") are delivered herewith, together with all amendments and addenda thereto as in effect on the date hereof.
4. The following is a true, accurate and compared copy of a Resolution (the "Resolution") adopted by the Customer's Board of Directors at a special meeting thereof held on due notice at which there was present a quorum authorized to adopt the Resolution and the entire proceedings of which were proper and in accordance with the Customer's Governing Documents. The Resolution was duly made, seconded and unanimously adopted, remains in full force and effect and has not been revoked, annulled, amended or modified in any manner whatsoever, and each authorization and empowerment contained in the Resolution is permitted and proper under the Customer's Governing Documents:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Resolved, that: (a) Each executive or managing officer and agent of the Company (each an "Authorized Person") is and shall be authorized and empowered, separately or collectively, to obtain financing from IBM Credit Corporation, a Delaware corporation ("IBM Credit") on behalf of the Company, from time to time, in amounts and upon terms and conditions as such Authorized Person deems proper, and for that purpose: (1) to execute notes, financing statements and other evidences of the Company's indebtedness with respect thereto; (2) to enter into financing agreements, loan agreements, security agreements, pledge agreements and any other agreements with IBM Credit and third parties relating to the terms and
Page 20 of 21
conditions upon which any such financing may be obtained and to the security to be furnished by the Company thereof; (3) to enter into, as lessor or lessee, or to assign or sell any interest Company may have in, any lease or similar rental agreement; (4) to modify, supplement or amend any such agreements, any such terms or conditions in such agreements and any such security therefor; (5) to grant powers of attorney, (6) to pledge, assign, guarantee, mortgage, consign, grant security interest in and otherwise transfer to IBM Credit as collateral security for any and all debts and obligations of the Company to IBM Credit or its affiliates, whenever and however arising, any assets of this Company; (7) to execute and deliver any and all assignments, schedules, transfers, endorsements, contracts, guarantees, agreements, designations, consignments, deeds of trust, mortgages, instruments of pledge or other instruments in respect thereof and to make remittances and payments in respect thereof by checks, drafts or otherwise; and (8) to do and perform all other acts and things deemed by such Authorized Person to be necessary, convenient or proper to carry out any of the foregoing.
(b) The authorization contained herein shall apply whether or not proceeds of any loans or advances made at the request of any Authorized Person shall be paid or credited by IBM Credit to the Company or shall be paid or credited to the individual order of any affiliates of the Company or other third party, and IBM Credit shall be under no obligation to inquire as to the application or disposition of the proceeds of any such loan or advance.
(c) Hereby ratified, approved, confirmed and consented to are all that any Authorized Person has done or may do in the premises."
5. Appearing below are the names, titles and specimen signatures of at least two Authorized Persons, as defined in the Resolution cited in the preceding paragraph, (list at least three such Authorized Persons):
Authorized Person(s) Title Signature (print) (print)
William W. Davis President /s/ William W. Davis Lillian A. Davis Vice President John Shutt Chief Financial Officer /s/ John Shutt
The foregoing is not intended to be a comprehensive or exclusive list of the Customer's Authorized Persons. Upon request, Customer will promptly provide to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document IBM Credit additional certificates containing the name, title and specimen signature of other Authorized Persons, and IBM Credit may now and in the future rely on the signature of any Authorized Person whether or not listed on this or any other certificate or on the signature page(s) hereof. Nevertheless, it is hereby certified that each name, title and signature appearing above or on the signature page(s) hereof, is consistent with the books and records of the Customer.
Page 21 of 21
IN WITNESS WHEREOF, I have signed this certificate this ______day of ______, 19___.
______
Name: ______
ATTACHMENT J
IBM Credit and Customer agree that this Agreement shall govern the financing facility between them, except to the extent that the Customer is in default of paragraphs 9.1, 9.2, 9.3, 9.4 and 10.1 herein as of the date hereof (the "Specified Defaults") and that such Specified Defaults are addressed in the Forbearance Agreement dated October 15, 1997, then said Forbearance Agreement shall govern the rights and remedies of both Customer and IBM Credit regarding such Specified Defaults.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.16
[LOGO] ALLIANCE ------Business Centers LEASE AND SERVICE AGREEMENT ------
This Agreement is made this 6th day of January, 1999, by and between ALLIANCE 8150 Leesburg, Inc., d/b/a ALLIANCE Business Centers ("Lessor") having offices known and numbered as Suite 600/700 (the "Facility") in the building located at 8150 Leesburg Pike, Vienna, Virginia 22182 (the "Building") and Litronic, Inc. ("Lessee") a Corporation with an address of 2030 Main Street Suite 1250, Irvine, CA 92614. The parties for themselves, their heirs, legal representatives, successors and assigns. agree as follows:
1. Demise and Description of Property. ------
a. Lessor leases to Lessee and Lessee leases from Lessor, the "Premises" (defined below), being a subpart of Lessor's total leased Facility space, for the term and subject to the conditions and covenants hereinafter set forth and to all encumbrances, restrictions, zoning laws, regulations or statutes affecting the Building, Facility or Premises.
b. The Premises consists of Facility office space number(s) 713 as shown in the floor plan annexed hereto. Lessor hereby grants Lessee the privilege to use in common with other lessees and parties that Lessor may designate certain office amenities located in the Facility; the use of all of which are subject to such reasonable rules and regulations as Lessor currently has in place and may adopt from time to time. The amenities are more particularly described in attached Exhibit "A." The "Operating Standards" as presently in place and governing the use of the Premises and the Facility are attached in Exhibit "B".
2. Use. ----
a. The Premises shall be used by Lessee solely for general office activity and such other normally incident uses and for no other purpose, in strict accordance with the Operation Standards. Additionally, Lessee shall not offer at the Premises any services which Lessor provides to its lessees, including, but not limited to those amenities or services described in attached Exhibit "A". In the event Lessee breaches any provision of this paragraph, Lessor shall be entitled to exercise any rights or remedies available to the Lessor pursuant to this Agreement together with such other rights and remedies
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document as the Lessor may otherwise have and choose to exercise.
b. Lessee shall not make nor permit to be made any use of the Premises which would violate any of the terms of this Agreement or which, directly or indirectly, is forbidden by statute, ordinance or government regulations, which may be dangerous to life, limb or property, which may invalidate or increase the premium of any policy of insurance carried on the Building or on the
1
Facility, which will suffer or permit the Premises to be used in any manner or anything to be brought into or kept there which, in the sole judgment of Lessor, shall in any way impair or tend to impair the high quality character, reputation or appearance of the Building or the Facility, or which may or tend to impair or interfere with any services performed by Lessor for Lessee or for others.
3. Term. -----
a. The term of this Agreement shall be for a period of 6 months, commencing 9:00 a.m. on the 1st day of February 1999, and ending 5:00 p.m. on the 31st day of July, 1999, unless renewed as provided in paragraph "3(b)" herein.
b. Upon the ending term date set forth herein or any extension thereof, the Agreement shall be extended for the same period of time as the initial term and upon the same terms and conditions as herein contained except for the amount of base rental charges, which shall each be increased by at least ten percent (10%), unless either party notifies the other in writing by certified or registered mail, return receipt requested, or delivered by hand that the Agreement shall not be extended within the period hereinafter specified or automatically renewed. If Lessee has less than three offices, such notice shall be given at least 60 days prior to the expiration date of this Agreement. If Lessee has three or more offices, such notice shall be given at least 90 days prior to the expiration date of this Agreement.
c. In the event the entire Premises or the Facility are damaged, destroyed or taken by eminent domain or acquired by private purchase in lieu of eminent domain so as to render the Premises fully untenantable and unrestorable in Lessor's sole judgment, then within 90 days thereafter by written notice to the other party, either party shall be able to terminate this Agreement, which will terminate as of the date thereof.
4. Rent. -----
a. For and during the term of this Agreement, Lessee shall pay Lessor as rent for the Premises a total rental of $ 33,738, payable in 6 equal monthly installments of $ 5623 (unless otherwise indicated on Rebate Rider attached),
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document each payable in advance of the first day of each calendar month after the commencement of the term, or a daily prorated amount for any partial calendar month during the term. If any payment of rent or other charges due under this Agreement is not received within five (5) calendar days after its due date, the Lessee will also pay, as additional rent, a late payment charge which shall be an amount equal to 10% of any amount owed to Lessor or $50 whichever is greater.
b. It is additionally specifically covenanted and agreed that the financial terms of this Agreement are strictly confidential and Lessee agrees not to knowingly or willfully divulge this information to or any other Lessee or potential Lessee of Lessor. Any such disclosure by the Lessee
2 of the financial terms of this Agreement as set forth herein above, shall constitute a material breach of this Lease.
c. The first such payment of rental as well as the payment of the Deposit as set forth in below shall be billed by Lessor simultaneously with execution of this Agreement. Should the Lessee fail to make such payment prior to the commencement of the term of this Agreement, then, at Lessor's sole option, the Agreement shall be null and void and of no further effect.
d. The rental payable during the term of this Agreement shall be increased on the first day of the month following notification of any rental increase (however designated) which the Lessor might receive form the Lessor's over-landlord ("Building"). The term "direct expenses" as used herein shall refer to the same items and costs as are used by the Building in its determination of expenses and costs passed on to Lessor. Lessor shall immediately notify Lessee in writing of any such increase, and shall bill Lessee for its pro rata share thereof, which bill Lessee shall pay promptly upon such notification for each and every month thereafter for the balance of the term.
e. Rent charges are based on the value of the rental Premises and services to be used by no more than five (5) person(s) only. If more than said number of person(s) habitually use the Premises or services, the Fixed Monthly Rental Charges will be increased by a factor of $100 (not included furnishings) for each additional person who habitually uses the Premises.
f. If a Lessee check is returned for any reason, Lessee will pay an additional charge of $100.00 per returned check and, for the purpose of considering default and/or late charges, it will be as if the payment represented by the returned check had never been made.
5. Security Deposit. ------
a. Lessee has deposited with Lessor $5623; $3300 already on hand; $2323 due on February 1, 1999 or the equivalent of one month's rent, in good or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document certified funds with a domestic bank, as a non-interest bearing security deposit. Lessor may use the security deposit to cure any default of Lessee under this Agreement, restore the Premises including any and all furniture, fixtures and equipment provided by Lessor and vendors at the Premises to their original condition and configuration, reasonable wear and tear excepted, to pay for repairs to any damage to the Premises, Executive Suite or Building, caused by Lessee or Lessee's guests, to pay any rent or other charges which Lessee owes Lessor at or prior to the expiration of this Agreement, and to reimburse Lessor for costs or expenses arising from any other obligation of Lessee which Lessee has failed to perform. If Lessor transfers control or ownership of the Premises and Lessor transfers the security deposit to such purchaser, Lessee will look solely to the new Lessor for the return of the security deposit, and the Lessor named in this Agreement shall be released from all liability for the return of the security deposit.
b. The security deposit (less any sums used by Lessor in accordance with the terms and conditions of this Agreement) will be returned within sixty (60) days after the termination of any services rendered or expiration of the term hereof. The security deposit shall not under any
3 circumstance be applied in lieu of be the final payment(s) of Fixed Monthly Rental charges or service charges under this Agreement.
c. In the event that, by reason of the Lessee's default in its obligations pursuant to this Agreement or otherwise, including but not limited to the payment of the Fixed Monthly Rental Charge, any amounts due by reason of the Lessee's use of additional services hereto and/or by reason of the Lessee's use of telephone services as supplied pursuant to this Agreement, Lessor shall be entitled to apply any of the security deposited pursuant to this Agreement to any outstanding sums due or owing to the Lessor, and Lessor shall have the right to charge the Lessee, as additional rent, such sums as are necessary to replenish any and all amounts applied so as to cause the security to be returned to its entire amount. The failure to pay such amounts as are necessary to replenish the security shall be considered a breach of this Agreement and shall entitle the Lessor to exercise any of its rights pursuant to this Agreement or otherwise.
6. Delivery of Possession. ------
If, for any reason whatsoever, Lessor cannot deliver possession of the Premises to Lessee at the commencement of the term, this Agreement shall not be void nor voidable nor shall Lessor be liable to Lessee for any loss or damage resulting therefrom; but there shall be an abatement of rent for the period between the stated term commencement and the time when Lessor does deliver possession of the Premises.
7. Services.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
a. So long as Lessee is not in default hereunder, Lessor shall make available certain amenities to Lessee as more particularly described in Exhibit "A". Such services shall be offered to Lessee, in conjunction with such services being offered by Lessor to its other lessees, without charge for the reasonable use of the same.
b. In addition, provided Lessee is not in default hereunder and provided the cost thereof does not exceed the Security Deposit, Lessor shall make available to Lessee certain other services the cost of which shall be billed to the Lessee as additional rent and the payment of which shall be subject to the same terms and conditions as those governing the payment of the Fixed Monthly Rental Charge herein regardless of when such charges are billed to the Lessee.
c. There will be a Client Service Charge of $100/month per office.
8. Telephone Services. ------
a. Provided Lessee is not in default of any of the terms, covenants, conditions or provisions of this Agreement, Lessor will make available to Lessee, a telecommunications package which will consist of some combination of telephone equipment, numbers, lines, conference calling, voice mail, local, long distance and international service, and directory listing. All components of the telecommunications package including any telephone numbers used by Lessee will remain
4
at all times the property of Lessor and Lessee will acquire no rights in the components beyond the term specified by Lessor.
b. Upon Lessee's written request, Lessee shall be entitled to appoint Lessor as its exclusive agent for the sole purpose of procuring and arranging Lessee's local "white pages" listings. Lessor shall have no involvement nor responsibility for any "yellow pages" listings desired by Lessee.
c. Lessor shall not be liable for any interruption or error in the performance of its services to Lessee under this Section. Lessee waives any recourse as against the Lessor for any claimed liability arising from the provision of telecommunication services including, but not limited to; injuries to persons or property arising out of mistakes, omissions, interruptions, delays, errors or defects in transmissions occurring in the course of furnishing telecommunications services provided same are not caused by the willful acts of the Lessor, as well any claim for business interruption and for consequential damages.
d. Lessor shall use reasonable efforts to provide Telephone Services to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Lessee in a first-class, professional manner. Telephone service charges shall be as per Lessor's then scheduled rates for the same, or as the same may be amended by Lessor from time to time.
e. In the event that any toll fraud is traceable to telecommunications services employed by Lessee, such toll fraud shall be deemed to be a material default in the Lessee's obligations hereunder. Lessee further hereby agrees to indemnify, hold harmless and to reimburse Lessor for all charges associated with any such toll fraud including, but not limited to, unauthorized use of calling cards or telephone lines.
f. It is expressly acknowledged and agreed that Lessor shall be the sole and exclusive provider of telecommunication services to Lessee. Lessee hereby agrees and covenants that it will not use any other telephone service or telephone carrier to provide it service in the Premises. In the event that Lessee uses or acquires any other telephone service at the Premises, such use and/or installation shall constitute a material default in the Lessee's obligations hereunder.
9. Furniture and Fixtures. ------
At its own cost and expense, Lessor shall furnish and install furniture, fixtures and equipment as are in Lessor's sole opinion necessary to provide suitable office accommodations for Lessee, upon such terms and conditions routinely applicable to the Facility. All such furniture, fixtures and equipment shall remain Lessor's property.
10. Insurance: Waiver of Claims. ------
a. Lessor has no obligation to and will not carry insurance for Lessee's benefit. Lessor will not be liable to Lessee or to any other person for damages on account of loss, damage or theft,
5
to any business or personal property of Lessee. Lessee hereby waives any claims against Lessor from any loss, cost, liability or expense (including reasonable attorneys' fees) arising from Lessee's use of the Premises or any common areas made available to Lessee by Lessor or from the conduct of Lessee's business, or from any activity, work, or thing done in the Premises or common areas by Lessee or Lessee's agents, contractors, visitors or employees. To the extent that Lessor has any liability for any of the forgoing pursuant to any law, ordinance or statute, Lessee shall seek recovery for such loss(es)/or damage(s) from its own insurance company as provided for in subparagraph (c) herein prior to making any claims against Lessor.
b. The Lessor shall not be liable or responsible to the Lessee for any
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document injury or damage resulting from the acts or omissions of Lessor, its employees, persons leasing office space or obtaining services from the Lessor, or other persons occupying any part of the Premises or Building, or for any failure of services provided such as water, gas or electricity, HVAC or for any injury or damage to person or property caused by any person except for such loss or damage arising from the willful or grossly negligent misconduct of the Lessor, its agents, servants, or employees or from the Lessor's failure to make repairs which it is obligated to make hereunder. Neither Lessor or any of its agents, employees, officers or directors shall be responsible for damages resulting from any error, omission or defect in any work performed or provided as part of the services rendered, whether uncompensated services or compensated services.
c. Lessee shall provide Lessor with a certificate of insurance evidencing General/Public Liability coverage with liability limits of not less than One Million Dollars ($1,000,000) per occurrence for Bodily Injury and/or Property Damage Liability and One Hundred Thousand Dollars ($100,000) per occurrence for Fire/Legal Liability. Said insurance coverage shall remain in force during the term of this Agreement and renewals thereof. The Lessor, Alliance National, Inc., and Alliance Business Centers, Inc. shall be named as an additional named insured on each of these policies. Lessee's failure to provide or maintain such insurance shall not reduce or otherwise alter Lessee's liability or responsibility to pay any judgment rendered against Lessee for such Liability and Damages Failure to maintain such insurance and/or to name the Lessor and its designees, as set forth above, shall constitute a material breach of this Agreement.
d. Both parties hereby agree to defend, indemnify and hold the other harmless from and against any and all claims, damages, injury, loss and expenses to or of any person or property resulting from the acts or negligence of their agents, employees, invitees and/or licensees while in the Building, Executive Suite and/or Premises.
e. Any fire and extended risk casualty insurance that Lessee maintains shall include a waiver of subrogation in favor of Lessor and Building Landlord, and any fire and extended risk insurance carried on the Facility by Lessor shall likewise contain a waiver of subrogation in favor of Lessee.
11. Waiver of Breach. ------
Should Lessor not insist upon the strict performance of any term or condition of this Agreement or to exercise any right or remedy available for a breach thereof, and no acceptance of
6 full or partial payment during the continuance of any such breach shall constitute a waiver of any such breach or any such term or condition. No term or condition of this Agreement required to be performed by Lessee and no breach thereof, shall be waived, altered or modified, except by a written instrument
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document executed by Lessor. No waiver of any breach shall affect or alter any term or condition in this Agreement, and each term or condition shall continue in full force and effect with respect to any other then existing or subsequent breach thereof.
12. Operating Standards. ------
The Operating Standards attached to this Agreement as Exhibit "B" are hereby made an integral part of this Agreement. Lessee, its employees, agents, guests, invitees, visitors and/or any other persons caused to be present in and around the Premises by the Lessee shall perform and abide by the rules and regulations and any amendments or additions to said rules and regulations as Lessor may make. In addition, Lessee, its employees and agents shall abide by all applicable governmental rules, regulations, statutes and ordinances relating in any way to the Premises or the Facility or Lessee's use or occupancy of the Premises or the Facility; failing which Lessee shall be in default hereunder and shall pay any fines or penalties imposed for such violation(s) directly to the appropriate governmental authority or to Lessor, if Lessor has paid such amount on behalf of Lessee. Such remedy shall not be exclusive. It is hereby further explicitly agreed and understood that full compliance with the Operating Standards as set forth constitutes a material obligation of this Agreement, and that the failure to so comply shall constitute a violation of this Agreement entitling the Lessor to exercise any of its remedies pursuant to this Agreement or otherwise.
13. Employment of Lessor's Employees. ------
a. Lessee agrees that it will not, during the term of this Agreement and any renewals thereof, or for a period of one year after the expiration or sooner termination of this Agreement, hire or issue an offer to employ any person who is an employee of Lessor or Lessor's agent without prior consent from Lessor. If Lessee either hires an employee of Lessor or Lessor's agent; or hires any person who has been an employee of Lessor or its agent within six months prior to the time they are hired by Lessee, Lessee will, at Lessors sole option, be liable to Lessor for liquidated damages equal to six months wages of the employee, at the rate last paid that employee by Lessor.
b. If Lessor assists in hiring an employee for Lessee. Lessee shall pay to the Lessor a commission equal to 20% of that employee's annual salary. The provisions hereof shall survive the expiration or sooner termination of the term thereof.
14. Alteration. ------
If Lessee requires any special wiring or office alterations for extraordinary business machines or other purposes not consistent with the current wiring, extraordinary telephone equipment or computer equipment. Such alteration shall be done (i) only with the express written permission of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 7
the Lessor, and if said permission is granted, then (ii) by an agent designated by Lessor at Lessee's cost. The electrical current shall be used for ordinary lighting purposes only, unless written permission to do otherwise shall first have been obtained from Lessor at an agreed cost to Lessee. Lessor further reserves the sole and exclusive right to limit the number and type of lines and telephone equipment Lessee can install in the leased Premises.
15. Re-Entry. ------
Lessor and its agents shall have the right to enter the Premises at any time for the purpose of making any repairs, alterations, inspections which it shall deem necessary for the preservation, safety or improvements of said Premises, without in any way being deemed or held to have committed an eviction (constructive or otherwise) of or trespass against Lessee.
16. Relocation. ------
a. Lessee agrees that the Lessor may, in its sole discretion, relocate the lessee from its present Premises to a like or similar office space within the same facility upon ten (10) days notice to the Lessee. In the event that the Lessor requires the Lessee to relocate, the Lessor hereby agrees to bear the reasonable cost of any such relocation, which cost shall be limited to the cost associated with the physical transfer of the Lessee's property to any different office, which the Lessor may designate.
b. In the event that any such relocation is effected, the Lessee hereby acknowledges that, unless otherwise agreed in writing, that all of the terms and conditions of this Agreement shall remain in full force and effect.
17. Assignment and Subletting. ------
No assignment or subletting of the Premises, this Agreement or any part thereof shall be made by Lessee without Lessor's prior written consent, which consent may be withheld for any or no reason in Lessor's sole discretion. Neither all nor any part of Lessee's interest in the Premises or this Agreement shall be encumbered, assigned or transferred, in whole or in part, either by act of the Lessee or by operation of law.
18. Surrender. ------
a. On expiration of the term, any extended term, or sooner termination of this Agreement, Lessee shall promptly surrender and deliver the Premises to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Lessor, without demand. and in as good condition as when let, ordinary wear and tear excepted.
b. Upon Lessee serving a notice of cancellation as provided in 3b herein Lessor shall have the right to show Lessee's Premises during the 60 day period (for one or two offices) or 90 day period (for three or more offices) as the case may be.
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c. Without prior written approval of Lessor, Lessee shall not remove any of Lessors property from the Premises upon termination of this Agreement or at any other time, except during Lessor's normal business hours. In the event Lessor consents to Lessee's removing property before or after normal business hours, any expenses incurred by Lessor as a result, including but not limited to expenses for personnel, security, elevator, utilities and the like shall be paid by Lessee in advance, to the extent determinable by Lessor, by certified and/or bank check.
d. If Lessee vacates the Premises and leaves behind any property, whatsoever, same will be deemed abandoned by Lessee and may be disposed of by Lessor at Lessee's expense. If Lessee defaults in the payment of sums due to Lessor, and Lessor changes the locks, removes Lessee's property, or otherwise denies access to Lessee, Lessor shall not be liable for conversion or partial, actual and/or constructive eviction.
19. Holding Over. ------
a. In the event that Lessee, should not renew this Agreement in accordance with the terms and conditions hereof, and/or fail to surrender the Premises upon the expiration of the term of the Agreement as provided herein, Lessee agrees to pay Lessor, as liquidated damages, a sum equal to twice the monthly rent and all additional charges for services provided by Lessor to Lessee, for each month that Lessee retains possession of the Premises or any part thereof; provided, however, that the acceptance of such sums, representing liquidated damages shall not be deemed to be permission to Lessee to continue in possession of the Premises.
20. Default and Remedies. ------
a. If the Lessee shall default in fulfilling any of its terms, conditions, covenants or provisions of this Agreement, including but not limited to:
1. Payment of fixed Monthly Rental Charges and/or any other charges hereunder within ten days of the date such charges become due,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. Becomes comes insolvent, makes an assignment for benefit of creditors, or files a voluntary petition under any bankruptcy or insolvency law, or has filed against it an involuntary petition under any such law;
3. Defaults in fulfilling any of the terms, conditions, covenants or provisions of this Agreement including but not limited to the breach of any of the terms and conditions set forth in the exhibits attached hereto;
4. The abandonment and/or vacatur of the Premises by the Lessee; then, after five days notice of any such default(s), the Lessor may, at its sole discretion, terminate this Agreement upon five days notice to the Lessee, and upon the expiration of such notice
9
period, the Lessee shall quit and surrender the Premises to the Lessor. In the event that the Lessee fails to quit and surrender the Premises, the Lessor may re-enter and take possession of the Premises and remove all persons and property therefrom, as well as disconnect any telephone lines installed for the benefit of Lessee, without any liability whatsoever to Lessee. In addition, Lessor may elect concurrently or alternately to accelerate all of Lessee's obligations hereunder including without limitation the rental, direct expenses, Schedule B Costs, and Telephone Services costs, and/or the re-letting of the Premises or any part thereof, for all or any part of the remainder of said term, to a party satisfactory to Lessor, at any monthly rental rate. Lessor, in its sole discretion, may accept notwithstanding the foregoing, Lessor shall have no obligation, implied or otherwise, to mitigate its damage(s) under such circumstances.
b. Should Lessor be unable to re-let the Premises, or should each monthly re-rental be less than the rental, Lessee is obligated to pay under this Agreement or any renewal thereof, at Lessor's option Lessee shall pay the amount of such deficiency, plus the expenses of reletting, immediately in one lump sum (if allowable under law) to Lessor upon demand and/or as such obligations accrue.
c. If Lessee shall default in the observance or performance of any term or covenant on Lessee's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, Lessor may immediately or at any time thereafter and with notice perform the obligation of Lessee thereunder, and if Lessor, in connection therewith or in connection with any default by Lessee in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to attorney's fees, in instituting, prosecuting or defending any actions or proceeding, such sums so paid or obligations incurred with interest and costs shall be deemed to be additional rent hereunder and shall be paid by Lessee to Lessor rendition of any bill or statement to Lessee therefor, and if Lessee's lease term shall have expired at the time of making of such expenditures or incurring of such
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document obligations, such sums shall be recoverable by Lessor as damages.
21. Mail & Telephone Forwarding. ------
a. After termination or expiration of the term of this Agreement, Lessee hereby agrees that it will take all reasonable steps to notify all parties of Lessee's new address and phone numbers. Lessor shall have no obligation, to notify any person or entity of Lessee's new address and/or phone numbers, except as expressly provided herein.
b. Lessor will, unless otherwise instructed by Lessee in writing, forward mail to Lessee at its new address and give out new telephone number via a voice mail message for a period of three (3) months at the rate of $150.00 per month, which sums shall be deducted from any amounts deposited with the Lessor as security hereunder and paid to the Lessor in advance. In the event that there is not sufficient security remaining on deposit to pay for the charges set forth herein,
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unless the Lessee shall pay the charges set forth herein to the Lessor in advance, Lessor shall have no obligation to provide the services set forth herein.
22. Notices. ------
Any notice under this Agreement shall be in writing and shall be either delivered by hand or by first class mail to the party at the address set forth below. Lessor hereby designates its address as:
ALLIANCE Business Centers 8150 Leesburg Pike, Suite 600/700 Vienna, Virginia 22182 Attn: Sales Management
with a copy by regular first class mail to: ALLIANCE National, Inc. 122 East 42nd Street. Suite 2707 New York, NY 10168 Attn: Legal Department
Lessee hereby designates its address (which address must be an address within the United States), as
Litronic, Inc. Attn: Charlie Scruggs 8150 Leesburg Pike, Suite 700
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Vienna, VA 22182
Litronic, Inc. Attn: Tom Seykora 2030 Main Street Suite 1250 Irvine, CA 92614
If such mail is properly addressed and mailed, as above, it shall be deemed notice for all purposes, given when sent or delivered, even if returned as undelivered.
23. Landlord's Election Under This Agreement. ------
Upon early termination of the main Building lease, this Agreement shall terminate unless the Building Landlord under the main lease elects to have this Agreement assigned to the Building Landlord or another entity as provided in the main lease. Upon notice to Lessor of the termination of the main lease and such election, (i) the Agreement shall be deemed to have been assigned by
11
Lessor to the Building Landlord or to such other entity as is designated in such notice by the Building Landlord, (ii) the Building Landlord shall be deemed to be the Lessor under this Agreement and shall assume all rights and responsibilities of Lessor under this Agreement, and (iii) Lessee shall be deemed to have attorned to the Building Landlord as Lessor under this Agreement.
24. Time of Essence. ------
Time is of the essence as to the performance by Lessee of all covenants, terms and provisions of this Agreement.
25. Severability. ------
The invalidity of any one or more of the sections, subsections, sentences, clauses or words contained in this Agreement or the application thereof to any particular set of circumstances, shall not affect the validity of the remaining portions of this Agreement or of their valid application to any other set of circumstances. All of said sections, subsections, sentences, clauses and words are inserted conditionally on being valid in law; and in the event that one or more of the sections, subsections, sentences, clauses or words contained herein shall be deemed invalid, this Agreement shall be construed as if such invalid sections, subsections, sentences, clauses or words had not been inserted. In the event that any part of this Agreement shall be held to be unenforceable or invalid, the remaining parts of this Agreement shall nevertheless continue to be
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document valid and enforceable as though the invalid portions had not been a part hereof. In addition, the parties acknowledge (i) that this Agreement has been fully negotiated by and between the parties in good faith and is the result of the joint efforts of both parties, (ii) that both parties have been provided with the opportunity to consult with legal counsel regarding its terms, conditions and provisions and (iii) that regardless of whether or not either party has elected to consult with legal counsel, it is the intent of the parties that in no event shall the terms, conditions or provisions of this Agreement be construed against either party as the drafter of this Agreement.
26. Execution by Lessee. ------
The party or parties executing this Agreement on behalf of the Lessee warrant(s) and represent(s): (i) that such executing party (or parties) has (or have) complete and full authority to execute this Agreement on behalf of Lessee; (ii) that Lessee shall fully perform its obligations hereunder.
27. Assumption Agreements and Covenants. ------
This Agreement is subject and subordinate to the main Building lease governing the Facility, under which Lessor is bound as tenant; and the provisions of the main lease, other than as to the payment of rent or other monies, are incorporated into this Agreement as if completely herein
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rewritten. Lessee shall comply with and be bound by all provisions of the main lease except that the payment of rent shall be governed by the provisions of this Agreement, and Lessee shall indemnify and hold Lessor harmless from and against any claim or liability under the main lease of Lessor arising from Lessee's breach of the Main Lease or this Agreement. Lessor covenants and warrants that the use of the Premises as a business office is consistent with and does not violate the terms of the main lease.
28. Covenant and Conditions. ------
Each term, provision and obligation of this Agreement to be performed by Lessee shall be construed as both a covenant and condition.
29. Entire Agreement. ------
This Agreement embodies the entire understandings between the parties relative to its subject matter, and shall not be modified, changed or altered in any respect except in writing signed by all parties.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 30. Counterparts. ------
This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as of the date first above written.
ALLIANCE Business Centers
ALLIANCE 8150 Leesburg, Inc.
By: /s/ CHERI REID ------Cheri Reid - Area General Manager
LESSEE: Litronic, Inc. (If a corporation)
By: /s/ AUTHORIZED SIGNATORY ------
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Title: Vice President [Corporate Seal]
LESSEE: (If an individual or partnership)
By: ______
By: ______
EXHIBIT "A"
. Furnished Private Office
. Furnished, Decorated Reception Room with Professional Receptionist
. Personalized Telephone Answering During Office Hours
. 24 hour Voicemail
. 12 hours of Conference Room or private furnished offices, subject to prior
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document scheduling and use by other lessees
. Corporate Identity on Lobby Directory where Available
. Complete Mail Room Facility
. Receipt of Mail and Packages
. Complete Kitchen Facilities with Coffee Machine
. Utilities and Maintenance
. HVAC During Normal Business Hours
. Janitorial Services
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. 8 hours per month courtesy use of other ALLIANCE Business Centers affiliated facilities. Locations subject to current affiliation and availability.
. 24 hour Access/7 days per week
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EXHIBIT "B" OPERATING STANDARDS
1. Lessees and their guests will conduct themselves in a businesslike manner; proper attire will be worn at all times; and the noise level will be kept to a level so as not to interfere with or annoy other Lessees.
2. Lessee shall not provide or offer to provide any services to Lessor's customers if such services are available from Lessor.
3. Lessee will not affix anything to the walls of the Premises without the prior written consent of the Lessor.
4. Lessee will not prop open any corridor doors, exit doors or doors connecting corridors during or after business hours.
5. Lessees using public areas may only do so with the consent of the Lessor, and those areas must be kept neat and attractive at all times.
6. Lessee will not conduct any activity within the Premises, Executive Suite or Building, which in the sole judgment of the Landlord will create excessive traffic or is inappropriate to the executive office suite environment.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 7. Lessee may not conduct business in the corridors or any other areas except in its designated offices or conference rooms without the written consent of Lessor.
8. All corridors, halls, elevators and stairways shall not be obstructed by Lessee or used for any purpose other than normal egress and ingress.
9. No advertisement, identifying signs or other notices shall be inscribed, painted or affixed on any part of the corridors, doors, or public areas.
10. Without Lessor's specific prior written permission, Lessee is not permitted to place "mass market", direct mail or advertising (i.e. newspaper, classified advertisements, yellow pages, billboards) using Lessor's assigned telephone number or take any such action that would generate a excessive of incoming calls.
11. Lessee shall not solicit clients of Lessor or and their employees in the Building without first obtaining Lessor's prior written approval.
12. Immediately following Lessee's use of conference room space and/or audio/visual equipment, Lessee shall clean up and return the space and equipment to the state
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and condition it was in prior to Lessee's use. If not, Lessor may charge Lessee for any other expenses required to restore the conference space and/or equipment to its original condition.
13. Lessor must be notified in writing if Lessee desires to utilize the conference room or other common areas of the Executive Suite during evening or weekend hours. Lessor may deny the Lessee access if the desired usage is inappropriate and may disrupt normal operations.
14. Lessee shall not, without Lessor's written consent, store or operate any computer (except a desktop/laptop computer or fax machine) or any other large business machines, reproduction equipment, heating equipment, stove, speaker phones, radios, stereo equipment or other mechanical amplification equipment, refrigerator or coffee equipment, or conduct a mechanical business, do any cooking, or ally to be used on the Premises oil, burning fluids, gasoline, kerosene for heating, warming or lighting. No article deemed extra hazardous on account of fire or any explosives shall be brought into said Premises or Facility. No offensive gases, odors on liquids shall be permitted.
15. Lessee will bring no animals into the Premises or Facility except for those assisting disabled individuals.
16. Lessor shall not remove furniture fixtures or decorative material from
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document offices or common areas without the written consent of Lessor.
17. Lessee shall not make any additional copies of any Lessor issued keys. All keys and security cards are the property of Lessor and must be returned upon request or by the close of business on the expiration or sooner termination of the Agreement term. Any lost or unreturned keys or cards shall incur a $25.00 per item charge and the cost to re-key the office.
18. Lessee shall not smoke nor allow smoking in any area of the Facility, including the Premises, and shall comply with all governmental regulations and ordinances concerning smoking.
19. Lessee shall not allow more than three visitors in the reception lobby of the Premises at any one time.
20. Lessee's parking rights (if any) are defined by Lessor's Agreement with the owner of the Building. Landlord reserves the right to modify parking arrangements if required to do so by Building management.
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21. Lessee shall cooperate and be courteous with all other occupants of the Facility and Lessor's staff and personnel. Lessor reserves the right to make such other reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care, appropriate operation and cleanliness of the Facility.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.17
AIRPORT BUS. CENTER
Dated: December 4, 1997 ------
1. BASIC LEASE TERMS. For purposes of this Lease, the following terms have the following definitions and meanings:
(a) LANDLORD: Airport Industrial Complex, a California Limited Partnership ------Landlord's Address (For Notices): 17755 Sky Park East, Ste 100, ------Irvine, CA 92614 ------or such other place as Landlord may from time to time designate by notice to Tenant with a copy to Koll Management Services, P.O. Box 1980, Newport Beach, California 92660.
(b) Tenant: Litronic Industries, Inc., a California Corporation ------TENANT'S TRADE NAME: Litronic ------TENANT'S ADDRESS FOR NOTICES (PREMISES): 17895 Sky Park Circle, Suite A ------Irvine. CA 92614 Attention: Kris Shah ------
(c) PREMISES: Suite(s) A of building 2401 (the "Building") of AIRPORT BUS. ------CENTER (the "Project"), located in the City of Irvine ("City"), County of ------Orange ("County"), State of California ('State") as shown on Exhibit "A-I". ------The Premises are depicted on Exhibit "A-II" and contain approximately 1,800 ----- Rentable Square Feet (subject to adjustment as provided in this Lease).
(d) TENANT'S SHARE: 0.2% ----
(e) TERM: 18 Lease Months and 0 Days. -- -
(f) COMMENCEMENT DATE: January 1, 1998.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ------
(g) EXPIRATION DATE: June 30, 1999. ------
(h) INITIAL MONTHLY BASE RENT: $1,476.00, subject to adjustment as provided in ------Exhibit "B" and as otherwise provided in this Lease.
(i) MONTHLY OPERATING EXPENSE CHARGE: $54.00, subject to adjustment as ------provided in Exhibit "B" and as set forth in Paragraph 6.
(j) SECURITY DEPOSIT: $1,655.00. ------
(k) NON-REFUNDABLE CLEANING FEE PORTION OF SECURITY DEPOSIT: $125.00 ------
(l) PERMITTED USE: General office for computer programming and installation of ------computer chips and no other use without the express written consent of ------Landlord, which consent Landlord may withhold in its sole and absolute discretion.
(m) BROKER(S): Dave Desner, CB Commercial. ------
(n) GUARANTOR(S): None ----
(o) INTEREST RATE: The greater of ten percent (10%) per annum or two percent (2%) in excess of the prime lending or reference rate of Wells Fargo Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the calendar month immediately prior to the event giving rise to the Interest Rate imposition; provided, however, the Interest Rate will in no event exceed the maximum interest rate permitted to be charged by applicable law.
(p) EXHIBITS: A-l through H, inclusive, which Exhibits are attached to this Lease and incorporated herein by this reference.
This Paragraph 1 represents a summary of the basic terms and definitions of this Lease. In the event of any inconsistency between the terms contained in this Paragraph 1 and any specific provision of this Lease, the terms of the more specific provision shall prevail.
2. PREMISES AND COMMON AREAS.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises upon and subject to the terms, covenants and conditions contained in this Lease to be performed by each party.
(b) TENANT'S USE OF COMMON AREAS. During the Term of this Lease, Tenant shall have the nonexclusive right to use in common with all other occupants of the Project, the following common areas of the Project (collectively, the "Common Areas"): the parking facilities of the Project which serve the Building, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, and similar areas and facilities situated within the Project and appurtenant to the Building which are not reserved for the exclusive use of any Project occupants.
(c) LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use of and access to the Premises is not interfered with in an unreasonable manner, Landlord reserves for itself and for all other owner(s) and operator(s) of the Common Areas and the balance of the Project, the right from time to time to: (i) install, use, maintain, repair, replace and relocate pipes, ducts, conduits, wires and appurtenant meters and equipment above the ceiling surfaces, below the floor surfaces and within the walls of the Building; (ii) make changes to the design and layout of the Project, including, without limitation, changes to buildings, driveways, entrances, loading and unloading
2
areas, direction of traffic, landscaped areas and walkways, parking spaces and parking areas; and (iii) use or close temporarily the Common Areas, and/or other portions of the Project while engaged in making improvements, repairs or alterations to the Building, the Project, or any portion thereof.
3. TERM. The term of this Lease ("Term") will be for the period designated in Subparagraph 1(e), commencing on the Commencement Date, and ending on the Expiration Date. Each consecutive twelve (12) month period of the Term of this Lease, commencing on the Commencement Date, will be referred to herein as a "Lease Year".
4. POSSESSION.
(a) DELIVERY OF POSSESSION. Landlord will deliver possession of the Premises to Tenant in its current "as-is" condition with the addition of only those items of work described on Exhibit "C" which are to be completed by Landlord on or before the Commencement Date. If, for any reason not caused by Tenant, Landlord cannot deliver possession of the Premises to Tenant on the Commencement Date, this Lease will not be void or voidable, nor will Landlord be liable to Tenant for any loss or damage resulting from such delay, but in such event, the Commencement Date and Tenant's obligation to pay rent will not commence until Landlord delivers possession to Tenant. If the delay in possession is caused by Tenant, then the Term and Tenant's obligation to pay rent will commence as of the Commencement Date even though Tenant does not yet have possession.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notwithstanding the foregoing, Landlord will not be obligated to deliver possession of the Premises to Tenant (but Tenant will be liable for rent if Landlord can otherwise deliver the Premises to Tenant) until Landlord has received from Tenant all of the following: (i) a copy of this Lease fully executed by Tenant and the guaranty of Tenant's obligations under this Lease, if any, executed by the Guarantor(s), (ii) the Security Deposit and the first installment of Monthly Rase Rent; and (iii) copies of policies of insurance or certificates thereof as required under Paragraph 19 of this Lease.
(b) CONDITION OF PREMISES. By taking possession of the Premises, Tenant will be deemed to have accepted the Premises in its "as-is" condition on the date of delivery of possession and to have acknowledged that all work to be completed by Landlord as described on Exhibit "C" has been completed and there are no additional items needing work or repair by Landlord. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the Building, the Project or any portions thereof or with respect to the suitability of same for the a conduct of Tenant's business and Tenant further acknowledges that Landlord will have no obligation to construct or complete any additional buildings or improvements within the Project. Landlord shall deliver the premises in a good working condition, including but not limited to the HVAC, electrical, plumbing and mechanical systems, etc. Tenant shall have (30) days after possession to notify Landlord.
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5. RENT
(a) MONTHLY BASE RENT. Tenant agrees to pay Landlord the Monthly Base Rent for the Premises (subject to adjustment as hereinafter provided) in advance on the first day of each calendar month during the Term without prior notice or demand, except that Tenant agrees to pay the Monthly Base Rent for the first month of the Term directly to Landlord concurrently with Tenant's delivery of the executed Lease to Landlord. All rent must be paid to Landlord, without any deduction or offset, in lawful money of the United States of America, at the address designated by Landlord or to such other person or at such other place as Landlord may from time to time designate in writing. Monthly Base Rent will be adjusted during the Term of this Lease as provided in Exhibit "B".
(b) ADDITIONAL RENT. All amounts and charges to be paid by Tenant hereunder, including, without limitation, payments for Operating Expenses, insurance and repairs, will be considered additional rent for purposes of this Lease, and the word "rent" as used in this Lease will include all such additional rent unless the context specifically or clearly implies that only Monthly Base Rent is intended.
(c) LATE PAYMENTS. Late payments of Monthly Base Rent and/or any item of additional rent will be subject to interest and a late charge as provided in Subparagraph 22(t) below.
6. OPERATING EXPENSES.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) OPERATING EXPENSES. Throughout the Term of this Lease, commencing on the Commencement Date, Tenant agrees to pay Landlord as additional rent in accordance with the terms of this Paragraph 6, Tenant's Share of Operating Expenses for the taxes and insurance for the Project and all costs and expenses of the operation, maintenance, repair, and replacement of the Project including, without limitation: (i) any form of real property tax assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, improvement bond or similar imposition of any kind or nature imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural lighting, drainage or other improvement or special assessment district thereof; (ii) any and all assessments under any covenants, conditions and restrictions affecting the Project; (iii) water, sewer and other utility charges; (iv) costs of insurance obtained by Landlord pursuant to Paragraph 19 of the Lease; (v) waste disposal and janitorial services; (vi) security; (vii) labor; (viii) management costs including, without limitation: (A) wages and salaries (and payroll taxes and similar charges) of property management employees, and (B) management office rental, supplies, equipment and related operating expenses and management fees; (ix) supplies, materials, equipment and tools including rental of personal property; (x) repair and maintenance of the structural portions of the buildings with the Project, including the plumbing, heating, ventilating, air-conditioning and electrical systems installed or furnished by Landlord; (xi) maintenance, costs and upkeep of all parking and other Common Areas; (xii) depreciation on a straight line basis and rental of personal property used in maintenance;
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(xiii) amortization on a straight line basis over the useful life [together with interest at the Interest Rate on the unamortized balance] of all capitalized expenditures which are: (A) reasonably intended to produce a reduction in operating charges or energy consumption; or (B) required under any governmental law or regulation that was not applicable to the Project at the time it was originally constructed; or (C) for replacement of any Project equipment needed to operate the Project at the same quality levels as prior to the replacement; (xiv) gardening and landscaping; (xv) maintenance of signs (other than signs of tenants of the Project); (xvi) personal property taxes levied on or attributable lo personal property used in connection with the Common Areas; (xvii) reasonable accounting, audit, verification, legal and other consulting fees; and (xviii) costs and expenses of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning, refuse removal, security and similar items, including appropriate reserves
(b) DETERMINATION OF TENANT'S MONTHLY OPERATING EXPENSE CHARGE. Tenant's Monthly Operating Expense Charge shall be determined as provided in Subparagraph 1(i) of this Lease. If Tenant's Monthly Operating Expense Charge is scheduled for each year of the Lease Term as shown on Exhibit "B", then Subparagraphs (c) and (d) below will not apply.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) ESTIMATE STATEMENT. Prior to the Commencement Date and on or about March 1st of each subsequent calendar year during the Term of this Lease, Landlord will endeavor to deliver to Tenant a statement ("Estimate Statement") wherein Landlord will estimate both the Operating Expenses and Tenant's Monthly Operating Expense Charge for the then current calendar year. Tenant agrees to pay Landlord, as additional rent, Tenant's estimated Monthly Operating Expense Charge each month thereafter, beginning with the next installment of rent due, until such time as Landlord issues a revised Estimate Statement or the Estimate Statement for the succeeding calendar year; except that, concurrently with the regular monthly rent payment next due following the receipt of each such Estimate Statement, Tenant agrees to pay Landlord an amount equal to one monthly installment of Tenant's estimated Monthly Operating Expense Charge (less any applicable Operating Expenses already paid) multiplied by the number of months from January, in the current calendar year, to the month of such rent payment next due, all months inclusive. If at any time during the Term of this Lease, but not more often than quarterly, Landlord reasonably determines that Tenant's's share of Operating Expenses for the current calendar year will be greater than the amount set forth in the then current Estimate Statement, Landlord may issue a revised Estimate Statement and Tenant agrees to pay Landlord, within ten (10) days of receipt of the revised Estimate Statement, the difference between the amount owed by Tenant under such revised Estimate Statement and the amount owed by Tenant under the original Estimate Statement for the portion of the then current calendar year which has expired. Thereafter Tenant agrees to pay Tenant's Monthly Operating Expense Charge based on such revised Estimate Statement until Tenant receives the next calendar year's Estimate Statement or a new revised Estimate Statement for the current calendar year.
(d) ACTUAL STATEMENT. By March 1st of each calendar year during the Term of this Lease, Landlord will also endeavor to deliver to Tenant a statement ("Actual Statement") which states Tenant's Share of the actual Operating Expenses for the preceding calendar year. If the
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Actual Statement reveals that Tenant's Share of the actual Operating Expenses is more than the total Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Tenant agrees to pay Landlord the difference in a lump sum within ten (10) days of receipt of the Actual Statement. If the Actual Statement reveals that Tenant's Share of the actual Operating Expenses is less than the Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Landlord will credit any overpayment toward the next monthly installment(s) of Tenant's Share of the Operating Expenses due under this Lease.
(e) MISCELLANEOUS. Any delay or failure by Landlord in delivering any Estimate Statement or Actual Statement pursuant to this Paragraph 6 will not constitute a waiver of its right to require an increase in rent nor will it relieve Tenant of its obligations pursuant to this Paragraph 6, except that Tenant will not be
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document obligated to make any payments based on such Estimate Statement or Actual Statement unless ten (10) days after receipt of such Estimate Statement or Actual Statement. If Tenant does not object to any Estimate Statement or Actual Statement within thirty (30) days after Tenant receives any such statement, such statement will be deemed final and binding on Tenant. Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of the actual Operating Expenses for the year in which this Lease terminates, Tenant agrees to promptly pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease shall promptly be rebated by Landlord to Tenant. Such obligation will be a continuing one which will survive the expiration or termination of this Lease. Prior to the expiration or sooner termination of the Lease Term and Landlord's acceptance of Tenant's surrender of the Premises, Landlord will have the right to estimate the actual Operating Expenses for the then current Lease Year and to collect from Tenant prior to Tenant's surrender of the Premises, Tenant's Share of any excess of such actual Operating Expenses over the estimated Operating Expenses paid by Tenant in such Lease Year.
7. SECURITY DEPOSIT AND CLEANING FEE. Upon Tenant's execution of this Lease, Tenant will deposit with Landlord the Security Deposit designated in Subparagraph 1(j). The Security Deposit will be held by Landlord as security for the full and faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Term hereof. The Security Deposit is not, and may not be construed by Tenant to constitute, rent for the last month or any portion thereof. If Tenant defaults with respect to any provisions of this Lease including, but not limited to, the provisions relating to the payment of rent or additional rent, Landlord may (but will not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any rent or any other sum in default, or for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant's default. If any portion to the Security Deposit is so used or applied, Tenant agrees, within ten (10) days after Landlord's written demand therefor, to deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and Tenant's failure to do so shall constitute a default under this Lease. Landlord is not required to keep Tenant's Security Deposit separate from its general funds, and Tenant is not
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entitled to interest on such Security Deposit. If Tenant is not in default at the expiration or termination of this Lease, Landlord will return the Security Deposit to Tenant, less the non-refundable Cleaning Fee portion designated in Subparagraph 1(k). Landlord's obligations with respect to the Security Deposit are those of a debtor and not of a trustee.
8. USE.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) TENANT'S USE OF THE PREMISES. The Premises may be used for the use or uses set forth in Subparagraph 1(1) only, and Tenant will not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord, which consent Landlord may not unreasonably withhold. Nothing in this Lease will be deemed to give Tenant any exclusive right to such use in the Project.
(b) COMPLIANCE. At Tenant's sole cost and expense, Tenant agrees to procure, maintain and hold available for Landlord's inspection, all governmental licenses and permits required for the proper and lawful conduct of Tenant's business from the Premises, it any. Tenant agrees not to use, alter or occupy the Premises or allow the Premises to be used, altered and occupied in violation of, and Tenant, at its sole cost and expense, agrees to use and occupy the Premises, and cause the Premises to be used and occupied, in compliance with: (i) any and all laws, statutes, zoning restrictions, ordinances, rules, regulations, orders and rulings now or hereafter in force and any requirements of any insurer, insurance authority or duly constituted public authority having jurisdiction over the Premises, the Building or the Project now or hereafter in force, (ii) the requirements of the Board of Fire Underwriters and any other similar body, (iii) the Certificate of Occupancy issued for the Building, and (iv) any recorded covenants, conditions and restrictions and similar regulatory agreements, if any, which affect the use, occupation or alteration of the Premises, the Building and/or the Project. Tenant agrees to comply with the Rules and Regulations referenced in Paragraph 28 below. Tenant agrees not to do or permit anything to be done in or about the Premises which will in any manner obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or unreasonably annoy them, or use or allow the Premises to be used for any unlawful or unreasonably objectionable purpose. Tenant agrees not to place or store any articles or materials outside of the Premises or to cause, maintain or permit any nuisance or waste in, on, under or about the Premises or elsewhere within the Project. Tenant shall not use or allow the Premises to be used for lodging, bathing or the washing of clothes.
(c) HAZARDOUS MATERIALS. Except for ordinary and general office supplies, such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute "Hazardous Materials" as defined in this Lease), Tenant agrees not to cause or permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Premises, the Building, the Common Areas or any other portion of the Project by Tenant, its agents, employees, subtenants, assignees, licensees, contractors or invitees (collectively, "Tenant's Parties"), without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. Concurrently
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with the execution of this Lease, Tenant agrees to complete and deliver to Landlord an Environmental Questionnaire in the form of Exhibit "G" attached hereto. Upon the expiration or earlier termination of this Lease, Tenant agrees
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to promptly remove from the Premises, the Building and the Project, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials which are installed, brought upon, stored, used, generated or released upon, in, under or about the Premises, the Building and/or the Project or any portion thereof by Tenant or any of Tenant's Parties. To the fullest extent permitted by law, Tenant agrees to promptly indemnity, protect, defend and hold harmless Landlord and Landlord's partners, officers, directors, employees, agents, successors and assigns (collectively, "Landlord indemnified Parties") from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration costs, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials on, in, under or about the Premises, the Building or any other portion of the Project and which are caused or permitted by Tenant or any of Tenant's Parties. Tenant agrees to promptly notify Landlord of any release of Hazardous Materials in the Premises, the Building or any other portion of the Project which Tenant becomes aware of during the Term of this Lease, whether caused by Tenant or any other persons or entities. In the event of any release of Hazardous Materials caused or permitted by Tenant or any of Tenant's Parties, Landlord shall have the right, but not the obligation, to cause Tenant to immediately take all steps Landlord deems necessary or appropriate to remediate such release and prevent any similar future release to the satisfaction of Landlord and Landlord's mortgagee(s). At all times during the Term of this Lease, Landlord will have the right, but not the obligation, to enter upon the Premises to inspect, investigate, sample and/or monitor the Premises to determine if Tenant is in compliance with the terms of this Lease regarding Hazardous Materials. As used in this Lease, the term "Hazardous Materials" shall mean and include any hazardous or toxic materials, substances or wastes as now or hereafter designated under any law, statute, ordinance, rule, regulation, order or ruling of any agency of the State, the United States Government or any local governmental authority, including, without limitation, asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and freon and other chlorofluorocarbons. The provisions of this Subparagraph 8(c) will survive the expiration or earlier termination of this Lease.
(d) REFUSE AND SEWAGE. Tenant agrees not to keep any trash, garbage, waste or other refuse on the Premises except in sanitary containers and agrees to regularly and frequently remove same from the Premises. Tenant shall keep all containers or other equipment used for storage of such materials in a clean and sanitary condition. Tenant shall properly dispose of all sanitary sewage and shall not use the sewage disposal system for the disposal of anything except sanitary sewage. Tenant shall keep the sewage disposal system free of all obstructions and in good operating condition. If the volume of Tenant's trash becomes excessive in Landlord's judgment, Landlord shall have the right to charge Tenant for additional trash disposal services and/or to
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document require that Tenant contract directly for additional trash disposal services at Tenant's sole cost and expense.
9. NOTICES. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery (including delivery by overnight courier or an express mailing service) or by mail, if sent by registered or certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at the Premises and notices to Landlord shall be sufficient if delivered to Landlord at the address designated in Subparagraph 1(a). Either party may specify a different address for notice purposes by written notice to the other, except that the Landlord may in any event use the Premises as Tenant's address for notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who negotiated this Lease are stated in Subparagraph 1(m) Landlord and Tenant each agree to promptly indemnify, protect, defend and hold harmless the other from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys" fees and court costs) resulting from any breach by the indemnifying party of the foregoing representation, including, without limitation, any claims that may be asserted by any broker, agent or finder undisclosed by the indemnifying party. The foregoing mutual indemnity shall survive the expiration or earlier termination of this Lease. Tenant agrees that Landlord will not recognize or compensate any third party broker with regards to any renewals and/or expansions unless such renewal or expansion rights are included within this Lease at the time of execution by the parties and in Landlord's commission agreement with the broker(s) specified in Subparagraph 1(m).
11. SURRENDER; HOLDING OVER.
(a) SURRENDER. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not constitute a merger, and shall, at the option of Landlord, operate as an assignment to Landlord of any or all subleases or subtenancies. Upon The expiration or earlier termination of this Lease, Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in a state of good order, repair and condition, ordinary wear and tear and casually damage excepted, with all of Tenant's personal property and alterations removed from the Premises to the extent required under Paragraph 13 and all damage caused by such removal repaired as required by Paragraph 13. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof alone will not be sufficient to constitute a termination of this Lease or a surrender of the Premises.
(b) HOLDING OVER. If Tenant holds over after the expiration or earlier termination of the Term, Landlord may, at its option, treat Tenant as a tenant at sufferance only, and evict Tenant immediately, or consent in writing to the continued occupancy by Tenant which shall be subject to all of the terms, covenants and conditions of this Lease, so far as applicable, including the payment of Operating Expenses, except that the Monthly Base Rent for any month
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document or partial month during which Tenant holds over shall be equal to one hundred fifty percent
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(150%) of the Monthly Base Rent in effect under this Lease immediately prior to such holdover. Acceptance by Landlord of rent alter such expiration or earlier termination will not result in a renewal of this Lease. If Tenant fails to surrender the Premises upon the expiration of this Lease in accordance with the terms of this Paragraph 11 despite demand to do so by Landlord, Tenant agrees to promptly indemnify, protect, defend and hold Landlord harmless from all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys" fees and costs), including, without limitation, costs and expenses incurred by Landlord in returning the Premises to the condition in which Tenant was to surrender it and claims made by any succeeding tenant founded on or resulting from Tenant's failure to surrender the Premises. The provisions of this Subparagraph 11(b) will survive the expiration or earlier termination of this Lease.
12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency, all taxes and assessments (real and personal) levied against Tenant's business operations or any personal property, improvements, alterations, trade fixtures or merchandise placed by Tenant in or about the Premises
13. ALTERATIONS. Tenant shall not make any alterations to the Premises or any other aspect of the Project, without Landlord's prior written consent, which consent Landlord may withhold in its reasonable but subjective discretion. All permitted alterations must be performed in compliance with Landlord's standard rules and regulations regarding alterations. All alterations will become the property of Landlord and will remain upon and be surrendered with the Premises at the end of the Term of this Lease; provided, however, Landlord may require Tenant to remove any or all alterations at the end of the Term of this Lease. If Tenant fails to remove by the expiration or earlier termination of this Lease all of its personal property, or any alterations identified by Landlord for removal, Landlord may, at its option, treat such failure as a hold-over pursuant to Subparagraph 11(b) above, and/or Landlord may (without liability to Tenant for loss thereof) treat such personal property and/or alterations as abandoned and, at Tenant's sole cost and expense and in addition to Landlord's other rights and remedies under this Lease, at law or in equity: (a) remove and store such items; and/or (b) upon ten (10) days" prior notice to Tenant, sell, discard or otherwise dispose of all or any such items at private or public sale for such price as Landlord may obtain or by other commercially reasonable means. Tenant shall be liable for all costs of disposition of Tenant's abandoned property and Landlord shall have no liability to Tenant with respect to any such abandoned property. Landlord agrees to apply the proceeds of any sale of any such property to any amounts due to Landlord under this Lease from Tenant (including Landlord's attorneys" fees and other costs incurred in the removal, storage and/or sale of such items), with any remainder to be paid to Tenant.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 14. REPAIRS.
(a) LANDLORD'S OBLIGATIONS. Landlord agrees to repair and maintain the structural portions of the Building, including the foundations, bearing and exterior walls (excluding glass),
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subflooring and roof (excluding skylights), and the unexposed electrical, plumbing and sewer systems, including those portions of such systems which are outside the Premises, gutters and downspouts on the Building and the heating, ventilating and air conditioning systems which serve the Premises, unless such maintenance and repairs are caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, servants, employees or invitees, in which case Tenant will pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. The costs of maintenance and repairs performed by Landlord will be included in Operating Expenses. Except as provided in this Subparagraph 14(a), Landlord has no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. Landlord will not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Tenant will not be entitled to any abatement of rent and Landlord will not have any liability by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute, ordinance, rule, regulation, order or ruling (including, without limitation, to the extent the Premises are located in California, the provisions of California Civil Code Sections 1941 and 1942 and any successor statutes or laws of a similar nature).
(b) TENANT'S OBLIGATIONS. Tenant agrees to keep, maintain and preserve the Premises in a state of condition and repair consistent with the Building and, when and if needed, at Tenant's sole cost and expense, to make all repairs to the Premises and every part thereof including, without limitation, all walls, storefronts, floors, ceilings, interior and exterior doors and windows and fixtures and interior plumbing. Any such maintenance and repairs will be performed by Landlord's contractor, or at Landlord's option, by such contractor or contractors as Tenant may choose from an approved list to be submitted by Landlord. Tenant agrees to pay all costs and expenses incurred in such maintenance and repair within seven (7) days after billing by such contractor or contractors. If Tenant refuses or neglects to repair and maintain the Premises property as required hereunder to the reasonable satisfaction of Landlord, Landlord, at any time following ten (10) days from the date on which Landlord makes a written demand on Tenant to effect such repair and maintenance, may enter upon the Premises and make such repairs and/or maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as additional rent, Landlord's costs for making such repairs plus an amount not to exceed ten
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document percent (10%) of such costs for overhead, within ten (10) days of receipt from Landlord of a written itemized bill therefor. Any amounts not reimbursed by Tenant within such ten (10) day period will bear interest at the interest Rate until paid by Tenant.
15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or other liens to be filed against all or any part of the Project, the Building or the Premises, nor against Tenant's leasehold interest in the Premises, by reason of or in connection with any repairs, alterations, improvements or other work contracted for or undertaken by Tenant or any other act or omission
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of Tenant or Tenant's agents, employees, contractors, licensees or invitees. At Landlord's request, Tenant agrees to provide Landlord with enforceable, conditional and final lien releases (or other evidence reasonably requested by Landlord to demonstrate protection from liens) from all persons furnishing labor and/or materials at the Premises. Landlord will have the right at all reasonable times to post on the Premises and record any notices o/ non-responsibility which it deems necessary for protection from such liens. If any such liens are filed, Tenant will, at its sole cost and expense, promptly cause such liens to be released of record or bonded so that it no longer affects title to the Project, the Building or the Premises. If Tenant fails to cause any such liens to be so released or bonded within ten (10) days after filing thereof, such failure will be deemed a material breach by Tenant under this Lease without the benefit of any additional notice or cure period described in Paragraph 22 below, and Landlord may, without waiving its rights and remedies based on such breach, and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payment in satisfaction of the claims giving rise to such liens. Tenant agrees to pay to Landlord within ten (10) days after receipt of invoice from Landlord, any sum paid by Landlord to remove such liens, together with interest at the Interest Rate from the date of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will at all reasonable times have the right to enter the Premises to inspect the same, to show the Premises to prospective purchasers or tenants, to post notices of nonresponsibility, and/or to repair the Premises as permitted or required by this Lease. In exercising such entry rights, Landlord will endeavor to minimize as reasonably practicable, the interference with Tenant's business, and will provide Tenant with reasonable advance notice of any such entry (except in emergency situations). Landlord will at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. Tenant shall not alter any lock or install any new or additional locks or bolts on any door of the Premises without Landlord's prior written consent and without providing Landlord with a key to all such locks. Except in the case of the gross negligence or willful misconduct of Landlord, any entry to the Premises obtained by Landlord will not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises and Landlord will
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document not be unable to Tenant for any damages or losses resulting from any such entry.
17. UTILITIES AND SERVICES. Throughout the Term of this Lease, Tenant shall pay directly to the utility company providing such service all costs for water, gas, heat, light, power, sewer, electricity, telephone and other services metered, chargeable or provided to the Premises. Landlord will not be liable to Tenant for any failure to furnish any of the foregoing utilities and services if such failure is caused by all or any of the following: (i) accident, breakage or repairs" (ii) strikes, lockouts or other labor disturbance or labor dispute of any character; (iii) governmental regulation, moratorium or other governmental action or inaction; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel, or (v) any other cause beyond Landlord's reasonable control. In addition, in the event of any stoppage or interruption of services or utilities, Tenant shall not be entitled to any abatement or reduction of
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rent (except as expressly provided in Subparagraphs 20(f) or 21(b) if such failure results from a damage or taking described therein), no eviction of Tenant will result from such failure and Tenant will not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord agrees to diligently attempt to resume service promptly.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) ASSUMPTION OF RISK. Tenant, as a material part other consideration to Landlord, agrees that neither Landlord nor any Landlord indemnified Parties (as defined in Subparagraph 8(c) above) will be liable to Tenant for, and Tenant expressly assumes the risk of and waives any and all claims it may have against Landlord or any Landlord Indemnified Parties with respect to, (i) any and all damage to property or injury to persons in, upon or about the Premises, the Building or the Project resulting from the act or omission (except for the grossly negligent or intentionally wrongful act or omission) of Landlord, (ii) any such damage caused by other tenants or persons in or about the Building or the Project, or caused by quasi-public work, (iii) any damage to property entrusted to employees of the Building, (iv) any loss of or damage to property by them or otherwise, or (v) any injury or damage to persons or property resulting from any casualty, explosion, falling plaster or other masonry or glass, steam, gas, electricity, water or rain which may leak from any part of the Building or any other portion of the Project or from the pipes, appliances or plumbing works therein or from the root, street or subsurface or from any other place, or resulting from dampness. Neither Landlord nor any Landlord Indemnified Parties will be liable for consequential damages arising out of any loss of the use of the Premises or any equipment or facilities therein by Tenant or any Tenant Parties (as defined in Subparagraph 8(c) above) or for interference with light. Tenant agrees to give prompt notice to Landlord in case of fire or accidents in the Premises or the Building, or of detects therein or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document in the fixtures or equipment.
(b) INDEMNIFICATION. Tenant will be liable for, and agrees, to the maximum extent permissible under applicable law, to promptly indemnify, protect, defend and hold harmless Landlord and all Landlord Indemnified Parties, from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs, including attorneys" fees and court costs (collectively, "Indemnified Claims"), arising or resulting from (i) any act or omission of Tenant or any Tenant Parties; (ii) the use of the Premises and Common Areas and conduct of Tenant's business by Tenant or any Tenant Parties, or any other activity, work or thing done, permitted or suffered by Tenant or any Tenant Parties, in or about the Premises, the Building or elsewhere within the Project and/or (iii) any default by Tenant of any obligations on Tenant's part to be performed under the terms of this Lease. In case any action or proceeding is brought against Landlord or any Landlord indemnified Parties by reason of any such indemnified Claims, Tenant, upon notice from Landlord, agrees to promptly defend the same at Tenant's sole cost and expense by counsel approved in writing by Landlord, which approval Landlord will not unreasonably withhold.
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(c) SURVIVAL; NO RELEASE OF INSURERS. Tenant's indemnification obligations under Subparagraph 18(b) will survive the expiration or earlier termination of this Lease Tenant's covenants, agreements and indemnification obligation in Subparagraphs 18(a) and 18(b) above, are not intended to and will not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of This Lease.
19. INSURANCE.
(a) TENANT'S INSURANCE. On or before the earlier to occur of (i) the Commencement Date, or (ii) the date Tenant commences any work of any type in the Premises pursuant to this Lease (which may be prior to the Commencement Date), and continuing throughout the entire Term hereof and any other period of occupancy, Tenant agrees to keep in full force and effect, at its sole cost and expense, the insurance specified on Exhibit "F" attached hereto. Landlord reserves the right to require any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts, and for insurance risks against which, a prudent tenant would protect itself, but only to the extent coverage for such risks and amounts are available in the insurance market at commercially acceptable rates Landlord makes no representation that the limits of liability required to be carried by Tenant under the terms of this Lease are adequate to protect Tenant's interests and Tenant should obtain such additional insurance or increased liability limits as Tenant deems appropriate.
(b) SUPPLEMENTAL TENANT INSURANCE REQUIREMENTS. All policies must be in a form reasonably satisfactory to Landlord and issued by an insurer admitted to do business in the State. All policies must be issued by insurers with a
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document policyholder rating of "A" and a financial rating of "X" in the most recent version of Best's Key Rating Guide. All policies must contain a requirement to notify Landlord (and Landlord's property manager and any mortgagees or ground lessors of Landlord who are named as additional insureds, if any) in writing not less than thirty (30) days prior to any material change, reduction in coverage, cancellation or other termination thereof. Tenant agrees to deliver to Landlord, as soon as practicable after placing the required insurance, but in any event within the time frame specified in Subparagraph 19(a) above, certificate(s) of insurance and/or if required by Landlord, certified copies of each policy evidencing the existence of such insurance and Tenant's compliance with the provisions of this Paragraph 19. Tenant agrees to cause replacement policies or certificates to be delivered to Landlord not less than thirty (30) days prior to the expiration of any such policy or policies. If any such initial or replacement policies or certificates are not furnished within the time(s) specified herein, Landlord will have the right, but not the obligation, to obtain such insurance as Landlord deems necessary to protect Landlord's interests at Tenant's expense. Tenant's insurance under Subparagraphs 19(a)(iii) and (iv) must name Landlord and Landlord's property manager (and at Landlord's request, Landlord's mortgagees and ground lessors of which Tenant has been informed in writing) as additional insureds and must also contain a provision that the insurance afforded by such policy is primary insurance and any
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insurance carried by Landlord and Landlord's property manager or Landlord's mortgagees or ground lessors, if any, will be excess over and non-contributing with Tenant's insurance.
(c) WAIVER OF SUBROGATION. Tenant's property insurance shall contain a clause whereby the insurer waives all rights of recovery by way of subrogation against Landlord. Tenant shall also obtain and furnish evidence to Landlord of the waiver by Tenant's worker's compensation insurance carrier of all rights of recovery by way of subrogation against Landlord.
20. DAMAGE OR DESTRUCTION.
(a) PARTIAL DESTRUCTION. If the Premises or the Building are damaged by fire or other casualty to an extent not exceeding twenty-five percent (25%) of the full replacement cost thereof and Landlord's contractor reasonably estimates in a writing delivered to Landlord and Tenant that the damage thereto may be repaired, reconstructed or restored to substantially its condition immediately prior to such damage within one hundred eighty (180) days from the date of such casualty, and Landlord will receive insurance proceeds sufficient to cover the costs of such repairs reconstruction and restoration (including proceeds from Tenant and/or Tenants insurance which Tenant is required to deliver to Landlord pursuant to Subparagraph 20(d) below to cover Tenant s obligation for the costs of repair, reconstruction and restoration of any portion of the tenant improvements and any alterations for which Tenant is responsible under this Lease) then Landlord agrees to commence and proceed diligently with the work of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document repair, reconstruction and restoration and this Lease will continue in full force and effect.
(b) SUBSTANTIAL DESTRUCTION. Any damage or destruction to the Premises or the Building which Landlord is not obligated to repair pursuant to Subparagraph 20(a) above will be deemed a substantial destruction. In the event of a substantial destruction, Landlord may elect to either: (i) repair reconstruct and restore the portion of the Building or the Premises damaged by such casualty in which case this Lease will continue in full force and effect, subject to Tenant's termination right contained in Subparagraph 20(c) below; or (ii) terminate this Lease effective as of the date of Tenant's receipt of Landlord s election to so terminate.
(c) TERMINATION RIGHTS. It Landlord elects to repair, reconstruct and restore pursuant to Subparagraph 20(b)(i) hereinabove, and if Landlord's contractor estimates that as a result of such damage, Tenant cannot be given reasonable use of and access to the Premises within two hundred forty (240) days after the date of such damage then either Landlord or Tenant may terminate this Lease effective upon delivery of written notice to the other within ten (10) days after Landlord delivers notice to Tenant of its election to so repair reconstruct or restore; provided, however, Tenant shall have no right to terminate this Lease if Landlord can relocate Tenant to other comparable Premises in the Building or the Project within one hundred eighty (180) days after the date of such damage.
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(d) TENANTS COSTS AND INSURANCE PROCEEDS. In the event of any damage or destruction of all or any part of the Premises, Tenant agrees to immediately (i) notify Landlord thereof, and (ii) deliver to Landlord all property insurance proceeds received by Tenant with respect to any tenant improvements installed by or at the cost of Tenant and any alterations , but excluding proceeds for Tenant s furniture, fixtures, equipment and other personal property whether or not this Lease is terminated as permitted in this Paragraph 20 and Tenant hereby assigns to Landlord all rights to receive such insurance proceeds. If for any reason (including Tenants failure to obtain required insurance) Tenant fails to receive insurance proceeds covering the full replacement cost of any tenant improvements and any alterations which are damaged, Tenant will be deemed to have self- insured the replacement cost of such items, and upon any damage or destruction thereto Tenant agrees to immediately pay to Landlord the full replacement cost of such items less any insurance proceeds actually received by Landlord from Landlord's or Tenant's insurance with respect to such items.
(e) ABATEMENT OF RENT. In the event of any damage, repair reconstruction and/or restoration described in this Paragraph 20, rent will be abated or reduced, as the case may be, from the date of such casualty in proportion to the degree to which Tenant s use of the Premises is impaired during such period of repair until such use is restored. Except for abatement of rent as provided hereinabove, Tenant will not be entitled to any compensation or damages for loss of, or interference with, Tenant's business or use or access of all or any part
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of the Premises or for lost profits or any other consequential damages of any kind or nature, which result from any such damage, repair, reconstruction or restoration.
(f) DAMAGE NEAR END OF TERM. Landlord and Tenant shall each have the right to terminate this Lease if any damage to the Premises or the Building occurs during the last twelve (12) months of the Term of this Lease where Landlord s contractor estimates in a writing delivered to Landlord and Tenant that the repair, reconstruction or restoration of such damage cannot be completed within sixty (60) days after the date of such casualty. If either party desires to terminate this Lease under this Subparagraph (f), it shall provide written notice to the other party of such election within ten (10) days after receipt of Landlord's contractor's repair estimates.
(g) WAIVER OF TERMINATION RIGHT. Landlord and Tenant agree that the foregoing provisions of this Paragraph 20 are to govern their respective rights and obligations in the event of any damage or destruction and supersede and are in lieu of the provisions of any applicable law, statute, ordinance, rule, regulation, order or ruling now or hereafter in force which provide remedies for damage or destruction of leased premises (including, without limitation, to the extent the Premises are located in California, the provisions of California Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any successor statute or laws of a similar nature).
21. EMINENT DOMAIN.
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(a) SUBSTANTIAL TAKING. If the whole of the Premises or such part hereof as shall substantially interfere with Tenant s use and occupancy of the Premises, as contemplated by this Lease, is taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party will have the right to terminate this Lease effective as of the date possession is required to be surrendered to such authority.
(b) PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking of a portion of the Premises which does not substantially interfere with Tenant s use and occupancy of the Premises including any temporary taking of ninety (90) days or less, then, neither party will have the right to terminate this Lease and Landlord will thereafter proceed to make a functional unit of the remaining portion of the Premises (but only to the extent Landlord receives proceeds therefor from the condemning authority), and rent will be abated with respect to the part of the Premises which Tenant is deprived of on account of such taking. Notwithstanding the immediately preceding sentence to the contrary , if any part of the Building or the Project is taken (whether or not such taking substantially interferes with Tenant's use of the Premises), Landlord may terminate this Lease upon thirty (30) days' prior written notice to Tenant if Landlord also terminates the leases of the other tenants of the Building which
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document are leasing comparably sized space for comparable lease terms.
(c) CONDEMNATION AWARD. In connection with any taking of the Premises or the Building Landlord will be entitled to receive the entire amount of any award which may be made or given in such taking or condemnation, without deduction or apportionment for any estate or interest of Tenant, it being expressly understood and agreed by Tenant that no portion of any such award will be allowed or paid to Tenant for any so-called bonus or excess value of this Lease, and such bonus or excess value will be the sole property of Landlord. Tenant agrees not to assert any claim against Landlord or the taking authority for any compensation because of such taking (including any claim for bonus or excess value of this Lease); provided, however, if any portion of the Premises is taken, Tenant will have the right to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the taking of Tenant's furniture, fixtures, equipment and other personal property within the Premises, for Tenant's relocation expenses, and for any loss of goodwill or other damage to Tenant's business by reason of such taking.
22. DEFAULTS AND REMEDIES.
(a) DEFAULTS. The occurrence of any one or more of the following events will be deemed a default by Tenant:
(i) The abandonment or vacation of the Premises by Tenant
(ii) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure
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continues for a period of three (3) days after written notice thereof from Landlord to Tenant; provided, however that any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, to the extent the Premises are located in California, the provisions of California Code of Civil Procedure Section 1161 regarding unlawful detainer actions or any successor statute or law of a similar nature).
(iii) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subparagraph 22(a)(i) or (ii) above, where such failure continues for a period of five (5) days after written notice thereof from Landlord to Tenant the provisions of any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, to the extent the Premises are located in California, California Code of Civil Procedure Section 1161 regarding unlawful detainer actions and any successor statute or similar law). If the nature of Tenants default is such that more than five (5) days are reasonably required for
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document its cure, then Tenant will not be deemed to be in default if Tenant, with Landlord's concurrence, commences such cure within such five (5) day period and thereafter diligently prosecutes such cure to completion.
(iv) (A) The making by Tenant of any general assignment for the benefit of creditors; (B) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (D) the attachment, execution or other judicial seizure of substantially all of Tenant s assets located at the Premises or of Tenant s interest in this Lease where such seizure is not discharged within thirty (30) days.
(b) LANDLORD'S REMEDIES; TERMINATION. In the event of any default by Tenant, in addition to any other remedies available to Landlord at law or in equity under applicable law (including without limitation to the extent the Premises are located in California, the remedies of Civil Code Section 1951.4 and any successor statute or similar law), Landlord will have the immediate right and option to terminate this Lease and all rights of Tenant hereunder. If Landlord elects to terminate this Lease then, to the extent permitted under applicable law Landlord may recover from Tenant: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rent loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rent loss that Tenant proves could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its
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obligations under this Lease or which, in the ordinary course of things, results therefrom including, but not limited to: attorneys" fees and costs; brokers commissions; the costs of refurbishment, alterations, renovation and repair of the Premises, and removal (including the repair of any damage caused by such removal) and storage (or disposal) of Tenant's personal property, equipment, fixtures, alterations, the tenant improvements and any other items which Tenant is required under this Lease to remove, but does not remove, as well as the unamortized value of any free rent, reduced rent, free parking, reduced rate parking and any tenant improvement allowance or other costs or economic concessions provided, paid, granted, or incurred by Landlord pursuant to this Lease. As used in Subparagraphs 22(b)(i) and (ii) above the "worth at the time of award" is computed by allowing interest at the interest Rate. As used in Subparagraph 22(b)(iii) above, the "worth at the time of award" is computed by
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).
(c) LANDLORD S REMEDIES; RE-ENTRY RIGHTS. In the event of any default by Tenant, in addition to any other remedies available to Landlord under this Lease, at law or in equity, Landlord will also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere and/or disposed of at the sole cost and expense of and for the account of Tenant in accordance with the provisions of Paragraph 13 of this Lease or any other procedures permitted by applicable law. No re-entry or taking possession of the Premises by Landlord pursuant to this Subparagraph 22(c) will be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction.
(d) LANDLORD S REMEDIES; RE-LETTING. If Landlord does not elect to terminate this Lease, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relate the Premises or any part thereof on terms and conditions as Landlord in its sole and absolute discretion may deem advisable with the right to make alterations and repairs to the Premises in connection with such reletting. If Landlord elects to relet the Premises then rents received by Landlord from such reletting will be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises incurred in connection with such reletting; fourth, to the payment of rent due and unpaid hereunder and the residue, if any will be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rents received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant agrees to pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency will be calculated and paid monthly.
(e) LANDLORD'S REMEDIES; PERFORMANCE FOR TENANT. All covenants and agreements to be performed by Tenant under any of the terms of this Lease are to be performed by Tenant
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at Tenant's sole cost and expense and without any abatement of rent. If Tenant fails to pay any sum of money owed to any party other than Landlord, for which it is liable under this Lease, or if Tenant fails to perform any other act on its part to be performed hereunder, and such failure continues for ten (10) days after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from its obligations, but shall not be obligated to, make any such payment or perform any such other act to be made or performed by Tenant. Tenant agrees to reimburse Landlord upon demand for all sums so paid by Landlord and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document all necessary incidental costs, together with interest thereon at the Interest Rate, from the date of such payment by Landlord until reimbursement by Tenant. This remedy shall be in addition to any other right or remedy of Landlord set forth in this Paragraph 22.
(f) LATE PAYMENT. If Tenant fails to pay any installment of rent within seven (7) days when due or if Tenant fails to make any other payment for which Tenant is obligated under this Lease when due, such late amount will accrue interest at the Interest Rate until such amount is paid by Tenant to Landlord. In addition Tenant agrees to pay to Landlord concurrently with such late payment amount, as additional rent, a late charge equal to ten percent (10%) of the amount due to compensate Landlord for the extra costs Landlord will incur as a result of such late payment. Landlord and Tenant agree that such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any such late payment. Acceptance of any such interest and late charge will not constitute a waiver of the Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord. If Tenant incurs a late charge more than three (3) times in any period of twelve (12) months during the Lease Term, then, notwithstanding that Tenant cures the late payments for which such late charges are imposed Landlord will have the right to require Tenant thereafter to pay all installments of Monthly Base Rent quarterly in advance in the form of a cashier's check throughout the remainder of the Lease Term. Any payments of any kind returned for insufficient funds will be subject to an additional handling charge of $25.00 and thereafter, Landlord may require Tenant to pay all future payments of rent or other sums due by money order or cashier's check.
(g) RIGHTS AND REMEDIES CUMULATIVE. All rights, options and remedies of Landlord contained in this Lease will be construed and held to be cumulative, and no one of them will be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law or in equity whether or not stated in this Lease. Nothing in this Paragraph 22 will be deemed to limit or otherwise affect Tenant's indemnification of Landlord pursuant to any provision of This Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of any obligation required to be performed by Landlord under this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of written notice from Tenant specifying in detail Landlord's failure to perform; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord will not be deemed in default if it commences such performance within such thirty
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(30) day period and thereafter diligently pursues the same to completion. Upon any default by Landlord, Tenant may exercise any of its rights provided at law
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document or in equity subject to the limitations on liability set forth in Paragraph 35 of This Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTION ON TRANSFER. Except as expressly provided in this Paragraph 24, Tenant will not, either voluntarily or by operation of law, assign or encumber this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use or occupancy of the Premises by any party other than Tenant (any such assignment encumbrance sublease, or the like will sometimes be referred to as a "Transfer"), without the prior written consent of Landlord, which consent Landlord will not unreasonably withhold. For purposes of this Paragraph 24 , if Tenant is a corporation, partnership or other entity, any transfer, assignment, encumbrance or hypothecation of fifty percent (50%) or more (individually or in the aggregate) of any stock or other ownership interest in such entity, and/or any transfer, assignment, hypothecation or encumbrance of any controlling ownership or voting interest in such entity, will be deemed a Transfer and will be subject to all of the restrictions and provisions contained in this Paragraph 24; provided, however, this provision will not apply to public corporations, the stock of which is traded through a public stock exchange or over the counter system.
(b) TRANSFER NOTICE. If Tenant desires to elect a Transfer, then at least thirty (30) days prior to the date when Tenant desires the Transfer to be effective (the "Transfer Date") Tenant agrees to give Landlord a notice (the "Transfer Notice") stating the name, address and business of the proposed assignee, sublessee or other transferee (sometimes referred to hereinafter as "Transferee") reasonable information (including references) concerning the character, ownership, and financial condition of the proposed Transferee, the Transfer Date, any ownership or commercial relationship between Tenant and the proposed Transferee, and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord may reasonably require.
(c) LANDLORDS OPTIONS. Within fifteen (15) days of Landlord's receipt of any Transfer Notice and any additional information requested by Landlord concerning the proposed Transferee's financial responsibility, Landlord will notify Tenant of its election to do one of the following: (i) consent to the proposed Transfer subject to such reasonable conditions as Landlord may impose in providing such consent; (ii) refuse such consent, which refusal shall be on reasonable grounds; or (iii) terminate this Lease as to all or such portion of the Premises which is proposed to be sublet or assigned and recapture all or such portion of the Premises for reletting by Landlord.
(d) ADDITIONAL CONDITIONS. A condition to Landlord's consent to any transfer of this Lease will be the delivery to Landlord of a true copy of the fully executed instrument of assignment, sublease, transfer or hypothecation, in form and substance reasonably satisfactory to Landlord.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Tenant agrees to pay to Landlord, as additional rent, all sums and other consideration payable to and for the benefit of Tenant by the assignee or sublessee in excess of the rent payable under this Lease for the same period and portion of the Premises. In calculating excess rent or other consideration which may be payable to Landlord under this paragraph, Tenant will be entitled to deduct commercially reasonable third party brokerage commissions and attorney's fees and other amounts reasonably and actually expended by Tenant in connection with such assignment or subletting if acceptable written evidence of such expenditures is provided to Landlord. No Transfer will release Tenant of Tenant's obligations under This Lease or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. Landlord may require that any Transferee remit directly to Landlord on a monthly basis, all monies due Tenant by said Transferee. Consent by Landlord to one Transfer will not be deemed consent to any subsequent Transfer. In the event of default by any Transferee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such Transferee or successor. If Tenant effects a Transfer or requests the consent of Landlord to any Transfer (whether or not such Transfer is consummated), then, upon demand, Tenant agrees to pay Landlord a non-refundable administrative fee of not less than One Hundred Dollars ($100.00) and actual expenses incurred, plus Landlord's reasonable attorneys" fees.
25. SUBORDINATION. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee or beneficiary with a deed of trust encumbering the Building and/or the Project, or any lessor of a ground or underlying lease with respect to the Building, this Lease will be subject and subordinate at all times to: (i) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building; and (ii) the lien of any mortgage or deed of trust which may now exist or hereafter be executed for which the Building, the Project or any leases thereof, or Landlord's interest and estate in any of said items, is specified as Security. Notwithstanding the foregoing, Landlord reserves the right to subordinate any such ground leases or underlying leases or any such liens to This Lease. If any such ground lease or underlying lease terminates for any reason or any such mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, at the election of Landlord's successor in interest, Tenant agrees to attorn to and become the tenant of such successor in which event Tenant's right to possession of the Premises will not be disturbed as long as Tenant is not in default under this Lease. Tenant hereby waives its rights under any law which gives or purports to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event of any such foreclosure proceeding or sale. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form reasonably required by Landlord, any additional documents evidencing the priority or subordination of this Lease and Tenant's attornment agreement with respect to any such ground lease or underlying leases or the lien of any such mortgage or deed of trust. If Tenant fails to sign and return any such documents
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document within ten (10) days of receipt, Tenant will be in default hereunder.
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26. ESTOPPEL CERTIFICATE. Within ten (10) days following any written request which Landlord may make from time to time, Tenant agrees to execute and deliver to Landlord an estoppel certificate, in Landlord's standard form or as may reasonably be required by Landlord's lender. Landlord and Tenant intend that any Statement delivered pursuant to this Paragraph 26 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. Tenant's failure to deliver such statement within such time will be conclusive upon Tenant (i) that this Lease is in full force and effect without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one (1) month's rent has been paid in advance. Without limiting the foregoing, if Tenant fails to deliver any such statement within such ten (10) day period, Landlord may deliver to Tenant an additional request for such Statement and Tenant's failure to deliver such Statement to Landlord within ten (10) days after delivery of such additional request will constitute a default under this Lease. Tenant agrees to indemnify and protect Landlord from and against any and all claims, damages, losses, liabilities and expenses (including attorneys fees and costs) attributable to any failure by Tenant to timely deliver any such estoppel certificate to Landlord as required by this Paragraph 26.
27. BUILDING PLANNING. If Landlord requires the Premises for use in conjunction with another suite or for other reasons connected with the planning program for the Building or the Project, Landlord will have the right upon sixty (60) days' prior written notice to Tenant, to move Tenant to other space in the Building of substantially similar size as the Premises, and with tenant improvements of substantially similar age, quality and layout as then existing in the Premises. Any such relocation will be at Landlord's cost and expense, including the cost of providing such substantially similar tenant improvements (but not any furniture or personal property) and Tenant's reasonable moving, telephone installation and stationary reprinting costs. If Landlord so relocates Tenant, the terms and conditions of this Lease will remain in full force and effect and apply to the new space, except that (a) a revised Exhibit "A" will become part of this Lease and will reflect the location of the new space, (b) Paragraph 1 of This Lease will be amended to include and state all correct data as to the new space, (c) the new space will thereafter be deemed to be the "Premises," and (d) all economic terms and conditions (e.g. rent, total Operating Expense Allowance, etc.) will be adjusted on a per square foot basis based on the total number of rentable square feel of area contained in the new space. Landlord and Tenant agree to cooperate fully with one another in order to minimize the inconvenience to Tenant resulting from any such relocation.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with the "Rules and Regulations," a copy of which is attached hereto and incorporated herein by this reference as Exhibit "E," and all reasonable and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord will not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Building of any of the Rules and Regulations.
23
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS. Tenant, within ten (10) days after request therefor, agrees to execute any reasonable amendments to this Lease which may be requested by any lender or ground lessor of the Project, provided any such amendments do not increase the obligations of Tenant under this Lease or adversely affect the leasehold estate created by this Lease. In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises or ground lessor of Landlord whose address has been furnished to Tenant, and Tenant agrees to offer such beneficiary, mortgagee or ground lessor a reasonable opportunity to cure the default (including with respect to any such beneficiary or mortgagee, time to obtain possession of the Premises, subject to this Lease and Tenant's rights hereunder, by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure).
30. DEFINITION OF LANDLORD. The term "Landlord" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, means and includes only the owner or owners, at the time in question, of the fee title of the Premises or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title (other than a transfer for security purposes only), Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) will be automatically relieved from and after the date of such transfer, assignment or conveyance of all liability as respects, the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed, so long as the transferee assumes in writing all such covenants and obligations of Landlord arising after the date of such transfer. Landlord and Landlord's transferees and assignees have the absolute right to transfer all or any portion of their respective title and interest in the Project, the Building, the Premises and/or this Lease without the consent of Tenant, and such transfer or subsequent transfer will not be deemed a violation on Landlord's part of any of the terms and conditions of This Lease.
31. WAIVER. The waiver by either party of any breach or any term, covenant or condition herein contained will not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor will any custom or practice which may develop between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of either party to insist upon performance in strict accordance with said terms. The subsequent acceptance of rent or any other payment hereunder by Landlord will not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rent and additional rent or other sum then due will be deemed to be other than on account of the earliest installment of such rent or other amount due, nor will any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or other amount or pursue any other remedy provided in this Lease. The consent or
24
approval of Landlord to or of any act by Tenant requiring Landlord's consent or approval will not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar acts by Tenant.
32. PARKING. So long as this Lease is in effect and provided Tenant is not in default hereunder, Landlord grants to Tenant, Tenant's visitors and guests a non-exclusive license to use the parking areas which serve the Building subject to the terms and conditions of this Paragraph 32 and the Rules and Regulations regarding parking contained in Exhibit "E" attached hereto. Tenant will not use or allow any of Tenant's employees or guests to use any parking spaces which have been specifically assigned by Landlord to other tenants or occupants or for other uses such as visitor parking or which have been designated by any governmental entity as being restricted to certain uses. Landlord may assign any unreserved and unassigned parking spaces and/or make all or any portion of such spaces reserved, if Landlord reasonably determines that it is necessary for orderly and efficient parking or for any other reasonable reason. Tenant agrees to cause its employees, subtenants, assignees, contractors, suppliers, customers and invitees to comply with the Rules and Regulations. Landlord reserves the right from time to lime to modify and/or adopt such other reasonable and non- discriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or prevented from the performance of any act required under this Lease by reason of strikes, lock-outs, labor troubles, inability to procure standard materials, failure of power, restrictive governmental laws, regulations or orders or governmental action or inaction (including failure, refusal or delay in issuing permits, approvals and/or authorizations which is not the result of the action or inaction of the party claiming such delay), riots, civil unrest or insurrection, war, fire, earthquake, flood or other natural disaster, unusual and unforeseeable delay which results from an interruption of any public utilities (e.g., electricity, gas, water, telephone) or other unusual and unforeseeable delay not within the reasonable control of the party delayed in performing work or doing acts required under the provisions of this Lease, then performance of such act will be excused for the period of the delay and the period for the performance of any such act will be extended for a period equivalent to the period of such delay. The provisions of this Paragraph 33 will
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document not operate to excuse Tenant from prompt payment of rent or any other payments required under the provisions of this Lease.
34. SIGNS. Landlord will designate the location on the Premises, if any, any for one or more Tenant identification sign(s). Tenant has no right to install Tenant identification signs in any other location in on or about the Premises or the Project and will not display or erect any other signs, displays or other advertising materials that are visible from the exterior of the Building or from within the Building in any interior or exterior common areas. The size, design, color and other physical aspects of any and all permitted sign(s) will be subject to (i) Landlord's written approval prior to installation, which approval may be withheld in Landlord s discretion (ii) any covenants, conditions or restrictions and sign criteria governing the
25
Project, and (iii) any applicable municipal or governmental permits and approvals. Tenant will be solely responsible for all costs for installation, maintenance, repair and removal of any Tenant identification sign(s). If Tenant fails to remove Tenant's sign(s) upon termination of this Lease and repair any damage caused by such removal, Landlord may do so at Tenant's sole cost and expense. Tenant agrees to reimburse Landlord for all costs incurred by Landlord to effect any installation, maintenance or removal on Tenant's account, which amount will be deemed additional rent, and may include, without limitation, all sums disbursed, incurred or deposited by Landlord including Landlord's costs, expenses and actual attorneys" fees with interest thereon at the Interest Rate from the date of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant under this Lease are personal to Tenant and may not be assigned, transferred or otherwise conveyed to any assignee or subtenant of Tenant without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
35. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Tenant on behalf of itself and all successors and assigns of Tenant covenants and agrees that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (a) Tenant's recourse against Landlord for monetary damages will be limited to Landlord's interest in the Building including, subject to the prior rights of any Mortgagee, Landlord's interest in the rents of the Building and any insurance proceeds payable to Landlord; (b) except as may be necessary to secure jurisdiction of the partnership, no partner of Landlord shall be sued or named as a party in any suit or action and no service of process shall be made against any partner of Landlord; (c) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (d) no judgment will be taken against any partner of Landlord and any judgment taken against any partner of Landlord may be vacated and set aside at any time after the fact; (e) no writ of execution will be levied against the assets of any partner of Landlord; (f) the obligations under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; and (g) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and at any time during the Term of this Lease upon ten (10) days prior written notice from Landlord, Tenant agrees to provide Landlord with a current financial statement for Tenant and any guarantors of Tenant and financial statements for the two (2) years prior to the current financial statement year for Tenant and any guarantors of Tenant. Such statements are to be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, audited by an independent certified public accountant.
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant paying the rent required under this Lease and paying all other charges and performing all of the covenants and provisions on Tenant's part to be observed and performed under this Lease Tenant
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may peaceably and quietly have hold and enjoy the Premises in accordance with this Lease
38. MISCELLANEOUS.
(a) CONFLICT OF LAWS. This Lease shall be governed by and construed solely pursuant to the laws of the State without giving effect to choice of law principles thereunder.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease all of the covenants conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns.
(c) PROFESSIONAL FEES AND COSTS. If either Landlord or Tenant should bring suit against the other with respect to this Lease, then all costs and expenses, including without limitation, actual professional fees and costs such as appraisers, " accountants" and attorneys" fees and costs, incurred by the party which prevails in such action, whether by final judgment or out of court settlement, shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. As used herein , attorneys" fees and costs shall include, without limitation , attorneys" fees, costs and expenses incurred in connection with any (i) post-judgment motions; (ii) contempt proceedings; (iii) garnishment, levy and debtor and third party examination; (iv) discovery; and (v) bankruptcy litigation. Tenant agrees to pay all collection agency fees and attorneys " fees charged to Landlord in connection with any late payment or non-payment of rent
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document or any other amounts due under this Lease including, without limitation, a fee of $75.00 for the preparation of any demand for delinquent rent or any notice to pay rent or quit.
(d) TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof.
(e) TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.
(f) PRIOR AGREEMENT; AMENDMENTS. This Lease constitutes and is intended by the parties to be a final, complete and exclusive statement of their entire agreement with respect to the subject matter of this Lease. This Lease supersedes any and all prior and contemporaneous agreements and understandings of any kind relating to the subject matter of this Lease. There are no other agreements, understandings, representations, warranties or statements, either oral or in written form, concerning the subject matter of this Lease. No alteration, modification, amendment or
27
interpretation of this Lease shall be binding on the parties unless contained in a writing which is signed by both parties.
(g) SEPARABILITY. The provisions of this Lease shall be considered separable such that it any provision or part of this Lease is ever held to be invalid, void or illegal under any law or ruling all remaining provisions of this Lease shall remain in full force and effect to the maximum extent permitted by law.
(h) RECORDING. Neither Landlord nor Tenant shall record this Lease nor a short form memorandum thereof without the consent of the other.
(i) COUNTERPARTS. This Lease may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement.
(j) NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlords relationship with other tenants. Accordingly, Tenant agrees that it, and its partners, officers, directors, employees, agents and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any newspaper or other publication or any other Tenant or apparent prospective tenant of the Building or other portion of the Project, or real estate agent, either directly or indirectly, without the prior written consent of Landlord, provided, however,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document that Tenant may disclose the terms to prospective subtenants or assignees under this Lease.
(k) NON-DISCRIMINATION. Tenant acknowledges and agrees that there shall be no discrimination against, or segregation of, any person, group of persons, or entity on the basis of race, color, creed, religion, age, sex, marital status, national origin, or ancestry in the leasing, subleasing, transferring, assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion thereof.
39. EXECUTION OF LEASE.
(a) Joint and Several Obligations. If more than one person executes this Lease as Tenant, their execution of this Lease will constitute their covenant and agreement that (i) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (ii) the term "Tenant" as used in this Lease means and includes each of them jointly and severally.
The act of or notice from, or notice or refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, will be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of
28
them had so acted or so given or received such notice or refund or so signed.
(b) TENANT AS CORPORATION OR PARTNERSHIP. If Tenant executes this Lease as a corporation or partnership, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that such entity is duly qualified and in good standing to do business in California and that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf, and in the case of a corporation, in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to Landlord on execution hereof, if requested by Landlord, and in accordance with the by-laws of Tenant, and, in the case of a partnership, in accordance with the partnership agreement and the most current amendments thereto, if any, copies of which are to be delivered to Landlord on execution hereof, if requested by Landlord, and that this Lease is binding upon Tenant in accordance with its terms.
(c) EXAMINATION OF LEASE. Submission of this instrument by Landlord to Tenant for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by their duly authorized representatives as of the date first above written.
TENANT: LANDLORD:
Litronic Industries, Inc., Airport Industrial Complex, a California Corporation a California Limited Partnership
By: /S/ KRIS SHAH By: /S/ JULIE GROOT ------Name: Kris Shah Name: Julie A. Groot Title: Chief Executive Officer Title: Senior Manager
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ADDITIONAL LEASE PROVISIONS
17.(a) UTILITIES AND SERVICES: The electricity for the Premises is currently in Landlord's name. Tenant agrees to contact Southern California Edison at (800) 990-7788 within ten (10) days from the date Tenant takes possession of the Premises and have the bill for electricity put into Tenant's name.
Tenant shall reimburse Landlord for any interim charges actually billed to Landlord for electricity from the date Tenant takes possession of the Premises until the date the bill is put into Tenant's name.
In the event Tenant fails to put the bill for electricity in Tenant's name within ten (10) days from the date Tenant takes possession of the Premises, Landlord shall have the right to contact Southern California Edison on the eleventh (11th) day after Tenant takes possession of the Premises and have the electricity for the Premises turned off.
Tenant hereby acknowledges that Tenant has the absolute responsibility to contact Southern California Edison and have electrical service put into Tenant's name. In the event Tenant fails to put the bill for electrical service into Tenant's name as required hereinabove and Landlord has electrical service turned off, Tenant understands that there will be no electrical service to the Premises. In such event, Tenant releases and holds Landlord harmless from any claims, demands, liabilities, damages, expenses, actions and causes of action based on, arising out of, or related thereto.
Tenant waives the right to additional notice of any kind from Landlord and/or Southern California Edison and specifically waives any rights or remedies provided by Civil Code Section 789.3.
Landlord (initials)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Tenant ______Tenant ______
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ADDITIONAL SECTIONS
40. OPTION TO EXTEND: Provided Tenant has complied with all of the terms and conditions of the Lease and is still in occupancy of the Premises, Tenant shall have an option to extend the Least Term for one (1) additional eighteen (18) month period on the same general terms and conditions then in existence under the Lease, except that all economic terms of the Lease for the option period shall be adjusted to the prevailing market terms and conditions for like or similar space in the project, but in any event, no less than the then-applicable Monthly Base Rent under the Lease. Tenant shall notify Landlord at least three (3) months, but no earlier than six (6) months, prior to the end of the Lease Term if Tenant desires to exercise its option. Tenant's option to extend shall be personal to Tenant and shall not be assignable.
Landlord (initials) Tenant (initials Tenant ______
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Exhibit A-1 - THE PROJECT
[P L A T M A P]
AIRPORT INDUSTRIAL COMPLEX
INITIAL Landlord (initials) Tenant ______
KOLL
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EARLY POSSESSION AGREEMENT
Reference is made to that lease dated December 4, 1997 ("Lease") Between Airport Industrial Complex, a California Limited Partnership , Landlord, and Litronic Industries, Inc., a California Corporation , Tenant, at 17895 Sky Park Circle, Suite A, Irvine, CA 92614 Building/Unit 2401/A
Tenant is to be allowed to occupy the premises on December 05, 1997 and rent is to begin on January 01, 1998 (the "Early Possession Period"). Landlord and Tenant agree that all the terms and conditions of the Lease are to be in full force and effect as of the date of Tenant's possession of the premises.
Tenant accepts premises in their present condition. Landlord agrees to complete all tenant improvements as set forth in the Lease. Tenant understands that his early occupancy may cause some delay in the construction of the tenant improvements and that such delay will not be a cause for forgiveness of any rent due. It is further understood that any improvement of the leased premises by the Tenant which may result in the delay in construction of tenant improvements or in the obtaining of a building permit without prior written consent of Landlord is hereby prohibited.
(initials)
In the event Tenant takes possession of the premises prior to completion of any construction, Tenant agrees to hold Landlord harmless from any and all claims for damages to goods, equipment or inconvenience.
Tenant hereby agrees that if Tenant breaches the Lease and/or abandons the premises before the end of the Lease term, if Tenant's right to possession is terminated by Landlord because of Tenant's breach of the Lease, Landlord shall, at its option, (i) void this Early Possession Agreement; and (ii) recover from Tenant, in addition to any damages due Landlord under the terms and conditions of the Lease, rent prorated for the duration of the Early Possession Period at a rental rate equivalent to one and a half (1 1/2) times the monthly rental rate in effect at the commencement of the Lease.
DATE: December 4, 1997
LANDLORD: Airport Industrial Complex, a California Limited Partnership
By: /S/ JULIE GROOT
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Julie A. Groot, Senior Manager
TENANT: Litronic Industries, Inc., a California Corporation
By: /S/ KRIS SHAH
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Kris Shah, Chief Executive Officer
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 10.26
General Services Administration Federal Supply Service Washington, DC 20406
February 3. 1999
Pulsar Data Systems 4390 Parliament Place Suite R Lanham, MD 20706
Subject: Transmittal of Contract Extension Modification Contract Number GS-35F-4232D Extended Contract Period
Dear Mr. Morris:
This is to advise you that a modification (copy enclosed) to extend the subject contract has been executed. The period of performance will now continue through April 30, 2002.
You are requested to send two complete copies of the approved pricelist, including updated terms and conditions and pricing, to the undersigned and two copies to the following address:
GSA/FSS/FML Crystal Mall #4, Room L-104 1941 Jefferson Davis Highway Arlington, VA 22202
We look forward to continuing working with your firm to make the FSS IT Schedules Program am mutually successful endeavor. Should you have any questions regarding your contract award, please feel free to contact the undersigned at 703/305/5492.
Sincerely,
/Deboray Lague/ Deborah Lague Contracting Officer IT Acquisition Center
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. AMENDMENT/MODIFICATION NO. PAGE OF PAGES MODIFICATION # 86 1 53
3. EFFECTIVE DATE
4. REQUISITION/PURCHASE REQ NO.
5. PROJECT NO.
6. GSA/FSS/FCI CRYSTAL MALL #4, ROOM 1017 1941 JEFFERSON DAVIS HIGHWAY ARLINGTON, VA 22202
7. ADMINISTERED BY (if other than Item 5) CODE ______
8. NAME AND ADDRESS OF CONTRACTOR (No., street, country, state and ZIP Code) Pulsar Data Systems, Inc. 4390 Parliament Place, Suite R Lanham, MD 20706
() 9A. AMENDMENT OF SOLICITATION NO. 9B. DATED (SEE ITEM 11) 10A. MODIFICATION OF CONTRACT/ORDER NO. GS-35F-4232D
10B DATED (SEE ITEM 13) 96122 FACILITY CODE 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers ____ is extended ______is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods:
(a) By completing items 8 and 15. and returning ___ copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the of offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required))
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
() A.THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation, date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
D. OTHER (Specify type of modification and authority) PER SECTION G.1
X IMPORTANT: Contractor __ is not, X is required to sign and return 2 ----- copies of the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
The above referenced contract under FSC Group 70, Information Technology Multiple Award Schedule, is hereby modified as follows:
Pulsar letter dated 1/11/99 Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force
15A. NAME AND TITLE OF SIGNER (Type of print) Roderick K. Morris Contracts Manager
15B. CONTRACTOR/OFFICER /S/ ------(Signature of person authorized to sign)
15C. DATE SIGNED 1/11/99 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
16B. UNITED STATES OF AMERICA BY: /DEBORAH LAGUE/ ------(signature of Contracting Officer)
16C. DATE SIGNED 2/3/99
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document STANDARD FORM 30 (REV. 10-83) Prescribed by GSA
Modification Page 2 of 53 pages
1. Change in Contract Period.
The original contract period was April 1, 1996 or Date of Award, whichever is later, through March 31, 1999.
The new contract period is April 1, 1996 or Date of Award, whichever is later, through five (5) years from the contract begin date, with a minimum period of three years from April 1, 1999. For example.
2. ADD/REPLACE the following FSC/FPDS Classes to list of products and/or services being solicited in Section B.2.
SIN 132-8 PURCHASE OF EQUIPMENT
FSC CLASS 7042 - MINI AND MICRO COMPUTER CONTROL DEVICES
___ Microcomputer Control Devices
___ Telephone Answering and Voice Messaging Systems
FSC CLASS 6020 - FIBER OPTIC CABLE ASSEMBLIES AND HARNESSES
___ Fiber Optic Cable Assemblies and Harnesses
FSC CLASS 5805 - TELEPHONE AND TELEGRAPH EQUIPMENT
___ Telephone Equipment
___ Audio and Video Teleconferencing Equipment
FSC CLASS 5820 - RADIO AND TELEVISION COMMUNICATION EQUIPMENT, EXCEPT AIRBORNE
___ Two-Way Radio Transmission/Receivers/Antennas
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ___ Broadcast Band Radio Transmitters/Receivers/Antennas
Modification Page 3 of 53 Pages
___ Microwave Radio Equipment/Antennas and waveguides
___ Satellite Communications Equipment
FSC CLASS 5826 - RADIO NAVIGATION EQUIPMENT, AIRBORNE
Airborne Radio Navigation Equipment
FSC CLASS 5830 - INTERCOMMUNICATION AND PUBLIC ADDRESS SYSTEMS, EXCEPT AIRBORNE
Pagers and Public Address Systems (wired and wireless transmission, including background music systems) (NOTE: Pager, Transmissions Services are excluded from this solicitation.)
FSC CLASS 5841 - RADAR EQUIPMENT, AIRBORNE
___ Airborne Radar Equipment
FSC CLASS 5895 - MISCELLANEOUS COMMUNICATION EQUIPMENT
___ Miscellaneous Communications Equipment
Indicate if the following is being offered in support of SIN 132-8 PURCHASE OF EQUIPMENT
___ Installation for equipment offered under SIN 132-8 (FPDS Code N070)
___ Deinstallation for equipment offered under SIN 132-8 (FPDS Code N070):
___ Reinstallation for equipment offered under SIN 132-8 FPDS Code N070)
NOTE: Installation must be incidental to, in conjunction with and in direct support of, the products sold under SIN 132-8 on this contract and cannot be purchased separately.
Modification Page 4 of 53 Pages
SPECIAL ITEM NO. 132-51 INFORMATION TECHNOLOGY PROFESSIONAL SERVICES
___ IT Facility Operation and Maintenance (FPDS CODE D301)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document X IT Systems Development Services (PDS CODE D302) ---
X IT Systems Analysis Services (FPDS Code D306) ---
X Automated Information Systems Design and Integration --- Services (FPDS Code D307)
___ Programming Services (FPDS Code D308) ___ Millennium Conversion Services (Y2K)
___ IT Backup and Security Services (FPDS Code D310)
___ IT Data Conversion Services (FPDS Code D311)
___ Computer Aided Design/Computer Aided Manufacturing (CAD/CAM) Services (FPDS Code D313)
X IT Network Management Services (FPDS Code D316)) ---
___ Automated News Services, Data Services, or Other Information Services (FPDS Code D317)
___ Other Information Technology Services, Not Elsewhere Classified (FPDS Code D399)
Note: All non-professional labor categories must be incidental to and used solely to support hardware, software and/or professional services, and cannot be purchased separately.
SIN 132-52 ELECTRONIC COMMERCE SERVICES
___ Navigation Services
3. DELETE from Section C.1 the list of EXCLUDED ITEMS and REPLACE with the following:
NOTE: The following ARE EXCLUDED from the Information Technology Schedule:- )
Modification Page 5 of 53 Pages i. Radar Equipment (except airborne radar equipment).
Offers for radar equipment (other than airborne radar equipment) must be made to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document the GSA Federal Supply Service under FSC Group 58, Part IX. Contact Mr. William Glacken on (215) 656-3835. ii. Electrical Equipment - e.g., Uninterruptible Power Supplies, Computer Back- Up Power Systems, Surge Suppressers, Power Line Conditioners, Surge Absorbers, etc. may be offered under this solicitation only in conjunction with the IT equipment these devices support. Offers which are limited to the electrical equipment cited above should be made to the GSA Federal Supply Service under FSC Group 61, Part V, Section B. Contact Mr. Dwight Young on (817) 978-8372. iii. Training Courses for products which are outside the scope of this Schedule. iv. Diskettes, Disk Cartridges, Disk Packs, Tape Cartridges, Tapes, and Optical Disks, may be offered only in conjunction with the hardware devices which utilize these supply items. Offers which do not include the hardware devices may be made under Federal Supply Schedule FSC Group 58, Part V. Contact (212) 264-2692. v. Carrying cases, except one per portable CPU purchase. vi. Financial Management Software that specifically covers complete primary- accounting systems that meet-Joint Financial Management Improvement Program (JFMIP) Core Financial System Requirements. Contact Ms. Kathy Wood, GSA, Federal Technology Service, on (703) 756-4214. vii. Subscription services for databases on magnetic media and/or on optical disk. Contact Ms. Mary Ann DeFeo on (212) 264-2306. viii. Any products which are not U.S. Made End Products, Designated Country End Products, Caribbean Basin Country End Products, Canadian End Products, or Mexican End Products in accordance with FAR 25.402(c) and General Services Administration Acquisition Regulation (GSAR) 525.402(a). ix. Any products or services that are not "commercial" as defined in accordance with FAR 52.202-l(c).
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4. ADD the following new paragraph to the end of Section F:
F.5 DELIVERY PRICES (F-FCI-202-G) (DEC 1997)
(a) Prices offered must cover delivery as provided below to destinations located within the 48 contiguous States and the District of Columbia.
(b) The Offeror is requested to indicate below whether or not prices submitted cover delivery f.o.b. destination in Alaska, Hawaii, the Commonwealth of Puerto Rico, and such overseas locations as specified:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (Yes) (No) Alaska X Hawaii | X Puerto Rico X Overseas Locations X
Specify: ______
(c) When deliveries are made to destinations outside the 48 contiguous States; i.e., Alaska, Hawaii, the Commonwealth of Puerto Rico, and such overseas locations as specified, and are not covered by paragraph (b), above, the following conditions will apply:
(1) Delivery will be f.o.b. inland carrier, point of exportation (FAR 52.247- 38), with the transportation charges to be paid by the Government from point of exportation to destination in Alaska, Hawaii, the Commonwealth of Puerto Rico, and such overseas locations specified, as designated by the ordering office. The Contractor shall add the actual cost of transportation to destination from the point of exportation in the 48 contiguous States nearest to the designated destination. Such costs will, in all cases, be based upon the lowest regularly established rates on file with the Interstate Commerce Commission, the U.S. Maritime Commission (if shipped by water), or any State regulatory body, or those published by the U.S. Postal Service; and must be supported by paid freight or express receipt or by a statement of parcel post charges including weight of shipment.
(2) The right is reserved to ordering agencies to furnish Government bills of lading.
(d) Ordering offices will be required to pay differential) between freight charges and express charges where express deliveries are desired by the Government.
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5. DELETE Section G.1 MODIFICATIONS in its entirety and REPLACE with the following:
G.1.A MODIFICATIONS (MULTIPLE AWARD SCHEDULE)(GSAR 552.243-72) (AUG 1997) (FCI DEVIATION-DEC 1997)
(a) General. The Contractor may request a contract modification by submitting a request to the Contracting Officer for approval, except as noted in paragraph (d) of this clause. At a minimum, every request shall describe the proposed change(s) and provide the rationale for the requested change(s).
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Types of Modifications.
(1) Additional items/additional SINs. When requesting additions, the following information must be submitted:
(i) Information requested in paragraphs (1) and (2) of the Commercial Sales Practice Format to add SINs.
(ii) Discount information for the new items(s) or new SIN(s). Specifically, submit the information requested in paragraphs 3 through 5 of the Commercial Sales Practice Format. If this information is the same as the initial award, a statement to that effect may be submitted instead.
NOTE: Tho format for the Commercial Sales Practices is found in item G.1.B.
(iii) Information about the new item(s) or new SIN(s) as described in 552.212- 70, Preparation of Offer (Multiple Award Schedule) is required.
NOTE: Preparations of Offer (Multiple Award Schedules) paragraph is item G.1.C.
(iv) Delivery time(s) for the new item(s) or the item(s) under the new SIN(s) must be submitted in accordance with 552.211-78, Commercial Delivery Schedule (Multiple Award Schedules).
NOTE: The Commercial Delivery Schedule (Multiple Award Schedules) reference is F-FSS-265, April 1995 for this contract.
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(v) Production point(s) for the new item(s) or the item(s) under the new SIN(s) must be submitted if required by 52.215-6, Place of Performance.
NOTE: The Place of Performance reference is 52.215-20 for this contract.
(vi) Any information requested by 52.212-3(f), Offerors Representations and Certifications - Commercial Items, that may be necessary to assure compliance with 552.225-9, Trade Agreements Act (I.2).
(2) Deletions. The Contractors shall provide an explanation for the deletion. The Government reserves the right to reject any subsequent offer of the same item or a substantially equal item at a higher price during the same contract period, if the Contracting Officer finds the higher price to be unreasonable when compared with the deleted item.
(3) Price Reduction. The Contractor shall indicate whether the price reduction falls under the item (i), (ii), or (iii) of subparagraph (c)(l) of the Price Reductions clause at 552.238-76 (I.14). If the price reduction falls under item (i), the Contractor shall submit a copy of the dated commercial pricelist(s). If
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document the price reduction falls under item (ii) or (iii), the Contractor shall submit a copy of the applicable pricelist(s), bulletins or letters or customer agreements which outline the effective date, duration, terms and conditions of the price reduction.
(c) Effective dates. The effective date of any modification is the date specified in the modification, except as otherwise provided ln the Price Reductions clause at 552.238-76 (I.14).
(d) Electronic file updates. The Contractor shall update electronic file submissions to reflect all modifications. Except for price reductions and corrections, the Contractor shall obtain the Contracting Officer's approval before transmitting changes. Price reductions and correction may be transmitted without prior approval. However, the Contracting Officer shall be notified as set forth in the Price Reductions clause at 552.238-76 (I.14).
(e) Amendments to paper Federal Supply Schedule Price lists. The Contractor shall distribute a supplemental paper Federal Supply Schedule Pricelist reflecting accepted changes within 15 days after the effective date of the modification. At a minimum, distribution shall be made to these ordering activities that previously received the basic document. In addition, two copies of the supplemental pricelist shall be submitted to the contracting officer, and two copies shall be submitted to the FSS Schedule Information Center.
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G.1.B COMMERCIAL SALES PRACTICES FORMAT (CSP-1)
Name of Offeror: Pulsar Data Systems, Inc. SIN(s): 132-8, 132-51, 132-33d, 132-12
NOTE: Please refer to clause 552.212-70, PREPARATION OF OFFER (MULTIPLE AWARD SCHEDULE), for additional information concerning your offer. Provide the following information for each SIN (or group of SINs or SubSIN) for which information is the same.
(1) Provide the dollar value of sales to the general public at or based on an established catalog or market price during the previous 12 month period or the Offeror's last fiscal year. $150M. State beginning and ending of the 12 month period. Beginning $70M Ending $80M. In the event that a dollar value is not an appropriate measure of the sales, provide and describe your own measure of the sales of the item(s).
(2) Show your total projected annual sales to the Government under this contract for the contract term, excluding options, for each SIN offered. If you currently hold a Federal Supply Schedule contract for the SIN the total projected annual sales should be based on your most recent 12 months of sales under that contract. SIN 132-8 $ 89M; SIN 132-51 $12M; SIN 132-33 $7M
(3) Based on your written discounting policies (standard commercial sales-
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document practices in the event you do not have written discounting policies), are the discounts and any concessions which you offer the Government equal-to or better than your best price (discount and concessions in any combination) offered to any customer acquiring the same items regardless of quantity or terms and conditions? YES X NO . (See definition of "concession" and "discount" in ------552.212-70.)
(4) (a) Based on your written discounting policies (standard commercial sales practices in the event you do not have written discounting policies), provide information as requested for each SIN (or group of SINs for which the information is the same) in accordance with the instructions at Table 515-1 which is provided in this solicitation for your convenience. The information should be provided in the chart below or in an equivalent format developed by the Offeror. Rows should be added to accommodate as many customers as required. See definition of "concession" and "discount" in 552.212-70.
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Column 1 Column 2 Column 3 Column 4 Column 5 Customer Discount Quantity/Volume FOB Term Concessions
(b) Do any deviations from your written policies or standard commercial sales practices disclosed in the above chart ever result in better discounts (lower prices) or concessions than indicated? YES NO X . If YES, explain ------deviations in accordance with the instructions at Table 515-1 which is provided in this solicitation for your convenience.
(5) If you are a dealer/reseller without significant sales to the general public, you should provide manufacturers information required by paragraphs (1) through (4) above for each item/SIN offered, if the manufacturer's sales under any resulting contract are expected to exceed $500,000. You must also obtain written authorization from the manufacturer(s) for Government access, at any time before award or before agreeing to a modification, to the manufacturer's sales records for the purpose of verifying the information submitted by the manufacturer. The information is required in order to enable the Government to make a determination that the offered price is fair and reasonable. To expedite the review and processing of offers, you should advise the manufacturer(s) of this requirement. The Contracting Officer may require the information be submitted on electronic media with commercially available spreadsheet(s). The information may be provided by the manufacturer directly to the Government. If the manufacturer's item(s) is being offered by multiple dealers/resellers, only one copy of the requested information should be submitted to the Government. In addition, you must submit the following information along with a listing of contact information regarding each of the manufacturers whose products
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and/or services are included in the offer (include the manufacturers name, address, the manufacturers contact point, telephone number, and FAX number) for each model offered by SIN:
(a) Manufacturer's Name (b) Manufacturer's Part Number (c) Dealer's/Reseller's Part Number (d) Product Description, (e) Manufacturer's List Price. (f) Dealer's/Resellers percentage discount from List Price or net prices
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TABLE 515-1 INSTRUCTIONS FOR COMMERCIAL SALES PRACTICES FORMAT
If you responded "YES" to question (3), on the COMMERCIAL SALES PRACTICES FORMAT, complete the chart in question (4)(a) for the customer(s) who receive your best discount. If you responded "NO" complete the chart in question (4)(a) showing your written policies or standard sales practices for all customers or customer categories to whom you sell at a price (discounts and concessions in combination) that is equal to or better than the price(s) offered to the Government under this solicitation or with which the Offeror has a current agreement to sell at a discount which equals or exceeds the discount(s) offered under this solicitation. Such agreement shall be in effect on the date the offer is submitted or contain an effective date during the proposed multiple award schedule contract period. If your offer is lower than your price to other customers or customer categories you will be aligned with the customer or category of customer that receives your best price for purposes of the Price Reductions clause at 552.238-76. The Government expects you to provide information required by the format in accordance with these instructions that is, to the best of your knowledge and belief, current, accurate, and complete as of 14 calendar days prior to its submission. You must also disclose any changes in your pricelist(s), discounts and/or discounting policies which occur after the offer is submitted, but before the close of negotiations. If your discount practices vary by model or product line, the discount information should be by model or product line as appropriate. You may limit the number of models or product lines reported to those which exceed 75% of actual historical Government sales (commercial sales may be substituted if Government sales are unavailable) value of the special item number (SIN).
Column 1-Identify the applicable customer or category of customer. A "customer" is any entity, except the Federal Government, which acquires supplies or services from the Offeror. The term customer includes, but is not limited to original equipment manufacturers, value added resellers, state and local governments, distributors, educational institutions (an elementary, junior high, or degree granting school which maintains a regular facility and established curriculum and an organized body of students), dealers, national accounts, and end users. In any instance where the Offeror is asked to disclose information
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document for a customer, the Offeror may disclose information by category of customer if the Offeror's discount policies or practices are the same for all customers in the category. (Use a separate line for each customer or category of customer.)
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Column 2-Identify the discount. The term "discount" is as defined in solicitation clause 552.212-70 Preparation of Offer (Multiple Award Schedule). Indicate the best discount (based on your written discounting policies or standard commercial discounting practices if you do not have written discounting policies) at which you sell to the customer or category of customer identified in column 1, without regard to quantity; terms and conditions of the agreements under which the discounts are given; and whether the agreements are written or oral. Net prices or discounts off of other pricelists should be expressed as percentage discounts from the pricelist which is the basis for your offer. If the discount disclosed is a combination of various discounts (prompt payment, quantity, etc.), the percentage should be broken out for each type of discount. If the pricelists which are the basis of the discounts given to the customers identified in the chart are different than the pricelist submitted upon which your offer is based, identify the type or title and date of each pricelist. The Contracting Officer may require submission of these pricelists. To expedite evaluation, Offerors may provide these pricelists at the time of submission.
Column 3-Identify tho quantity or volume of sales. Insert the minimum quantity or sales volume which the identified customer or category of customer must either purchase/order, per order or within a specified period, to earn the discount. When purchases/orders must be placed within a specified period to earn a discount indicate the time period.
Column 4-Indicate tho FOB delivery term for each identified customer. (See FAR 47.3 for an explanation of FOB delivery terms.)
Column 5-Indicate concession regardless of quantity granted to the identified customer or category of customer. Concessions are defined in solicitation clause 552.212-70 Preparation of Offers (Multiple Award Schedule). If the space provided is inadequate, the disclosure should be made on a separate sheet by reference. If you respond "YES" to question 4(b) in the Commercial Sales Practices Format, provide an explanation of the circumstances under which you deviate from your written policies or standard commercial sales practices disclosed in the chart on the Commercial Sales Practices Format and explain how often they occur. Your explanation should include a discussion of situations that lead to deviations from standard practice, an explanation of how often they occur, and the controls you employ to assure the integrity of your pricing. Examples of typical
Modification Page 13 of 53 Pages,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document deviations may include, but are not limited to, one time goodwill discounts to charity organizations or to compensate an otherwise disgruntled customer; a limited sale of obsolete or damaged goods; the sale of sample goods to a new customer; or the sales of prototype goods for testing purposes.
If deviations from your written policies or standard commercial sales practices disclosed in the chart on the Commercial Sales Practices Format are so significant and/or frequent that the Contracting Officer cannot establish whether the price(s) offered is fair and reasonable, then you may be asked to provide additional information. The Contracting Officer may ask for information to demonstrate that you have made substantial sales of the item(s) in the commercial market consistent with the information reflected on the chart on the Commercial Sales Practices Format, a description of the conditions surrounding those sales deviations, or other information that may be necessary in order for the Contracting Officer to determine whether your offered price(s) is fair and reasonable. In cases where additional information is-requested, the Contracting Officer will target the request in order to limit the submission of data to that needed to establish the reasonableness of the offered price.
G.1.C PREPARATION OF OFFER (MULTIPLE AWARD SCHEDULE) (GSAR 552.212-70) (AVG 1997)
(a) Definitions. Concession, as used in this solicitation, means a benefit, enhancement or privilege (other than a discount), which either reduces the overall cost of a customer's acquisition or encourages a customer to consummate a purchase. Concessions include, but are not limited to, freight allowance, extended warranty, extended price guarantees, free installation and bonus goods.
Discount, as used in this solicitation, means a reduction to catalog prices (published or unpublished). Discounts include, but are not limited to, rebates, quantity discounts, purchase option credits, and any other terms or conditions other than concessions which reduce the amount of money .a customer ultimately pays for goods or services ordered or received. Any net price lower than the list price is considered a "discount" by the percentage difference from the list price to the net price.
(b) For each Special Item Number (SIN) included in an offer, the Offeror shall provide the information outlined in paragraph (c). Offerors may provide a single response covering more than one SIN, if the information disclosed is the same for all products
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under each SIN. If discounts and concessions vary by model or product line, Offerors shall ensure that information is clearly annotated as to item or items referenced.
(c) Provide information described below for each SIN:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (l) Two copies of the Offeror's current published (dated or otherwise identified) commercial descriptive catalogs and/or pricelists from which discounts are offered. If special catalogs or pricelists are printed for the purpose of this offer, such descriptive catalogs or pricelists shall include a statement indicating the special catalogs or pricelists represent a verbatim extract from the Offeror's commercial catalogs and/or pricelists and identify the descriptive catalogs and/or pricelists from which the information has been extracted.
(2) Next to each offered item in the commercial catalog and/or pricelist, the Offeror shall write the special item number (SIN) under which the item is being offered. Unless a special catalog or pricelist is submitted, all other items shall be marked "excluded," lined out, and initialed by the Offeror.
(3) The discount(s) offered under this solicitation. The description of discounts offered shall include all discounts, such as prompt payment discounts, quantity/dollar volume discounts (indicate whether models/products can be combined within the SIN or whether SINs can be combined to earn discounts), blanket purchase agreement discounts, or purchase option credits. If the terms of sale appearing in the commercial catalogs or pricelist on which an offer is based are in conflict with the terms of this solicitation, the latter shall govern.
(4) A description of concessions offered under this solicitation which are not granted to other customers. Such concessions may include,-but are not limited to, an extended warranty, a return/exchange goods policy, or enhanced or additional services.
(5) If the Offeror is a dealer/reseller or the Offeror will use dealers to perform any aspect of contract awarded under this solicitation, describe the functions, if any, that the dealer/reseller will perform.
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G.1.D REQUIREMENTS FOR COST OR PRICING DATA OR INFORMATION OTHER THAN COST OR PRICING DATA-MODIFICATIONS (FAR 52.215-21) (OCT 1997) (ALTERNATE IV-OCT 1997) (VARIATION I-AUG 1997)
(a) Submission of cost or pricing data is not required.
(b) Provide information described below.
(1) Information required by the clause at 552.243-72, Modifications (Multiple Award Schedule);
(2) Any additional supporting information requested by the Contracting Officer. The Contracting Officer may require additional supporting information, but only to the extent necessary to determine whether the price(s) offered is fair and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document reasonable.
(3) By submitting a request for modification, the Contractor grants the Contracting Officer or an authorized representative the right to examine, at any time before agreeing to a modification, books, records, documents, papers, and other directly pertinent records to verify the pricing, sales and other data related to the supplies or services proposed in order to determine the reasonableness of price(s). Access does not extend to Contractor's cost or profit information or other data relevant solely to the Contractor's determination of the prices to be offered in the catalog or marketplace.
6. DELETE Section G.3 CONTRACTOR'S REPORT OF SALES in its entirety and REPLACE with the following:
G.3 CONTRACTOR'S REPORT OF SALES (GSAR 552.238-72) (FEB 1998) (FCI DEVIATION--DEC 1997)
(a) The Contractor must report the quarterly dollar value (in U.S. dollars and rounded to the nearest whole dollar) of sales under the contract by calendar quarter (i.e., January-March, April-June, July-September, and October-December). The dollar value of a sale is the price paid by the schedule user for products and services on a schedule contract delivery order, as recorded by the Contractor. The reported contract sales value must include the Industrial Funding Fee (see Clause 552.238-77).
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(b) The Contractor must report the quarterly dollar value of sales on electronic GSA Form 72A, Contractor's Report of Sales, to the FSS Vendor Support Center (VSC) Website at Internet, http://VSC.gsa.gov. Sales shall be reported separately for each National Stock Number (NSN), Special Item Number (SIN), or subitem. If no sales occur, the Contractor shall show zero on the report for each separate National Stock Number (NSN), Special Item Number (SIN), or subitem.
(c) The Contractor must register with the FSS Vendor Support Center (VSC) before using the automated reporting system. To register, the Contractor (or his authorized representative) must call the VSC at (703) 305-6235 and provide the necessary information regarding the company, contact name(s), and telephone number(s). The VSC will then issue a 72A specific password and provide other information needed to access the reporting system. Instructions for electronic reporting are available at the VSC Website or by calling the above phone number.
(d) The Contractor must convert the total value of any sales made in foreign currency to U.S. dollars using the "Treasury Reporting Rates of Exchange," issued by the U.S. Department of Treasury, Financial Management Service. The contractor must use the issue of the Treasury report in effect on the last day of the reporting quarter. The report is available from:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Department of the Treasury Financial Management Service International Funds Branch 3700 East-West Highway PGCII, Room 5Al9 Hyattsville, MD 20782 Telephone: (202) 874-7994 Internet: http://www.ustreas.gov/treasury/bureaus/finman/intn.html
(e) The report is due 30 days following the completion cf the reporting period. The Contractor must provide a close-out report within 120 days after the expiration date of the contract. This close-out report must cover all sales not shown in the final quarterly report and reconcile all errors and credits. If all contract sales are reported and all errors and credits on the final quarterly report are reconciled, then the Contractor shall show zero sales in the close- out report.
(f) The Government reserves the right to inspect without further notice, such records of the Contractor as pertain to sales under this contract. Willful failure or refusal to submit the required
Modification Page 17 of 53 Pages reports, or falsification thereof, constitutes sufficient cause for terminating the contract for cause under the termination provisions of this contract.
7. DELETE Section H.1 OPTION TO EXTEND in its entirety and REPLACE with the following:
F.1.A OPTION TO EXTEND THE TERM OF THE CONTRACT (I-FSS-164-A) (AUG 1995)
The Government may require continued performance of this contract for an additional 5 year period. The option clause may not be exercised more than one time. When the option to extend the term of this contract is exercised the following conditions are applicable:
(a) The Contracting Officer may exercise the option by providing a written notice to the Contractor ten (10) months before expiration of the contract.
(b) When the Government exercises its option to extend the term of this contract, prices in effect at the time the option is exercised will remain in effect during the option period, unless an adjustment is made in accordance with another contract clause (e.g., Economic Price Adjustment Clause or Price Reductions Clause).
H.1.B NOTICE REGARDING OPTION(S) (GSAR 552.217-71) (NOV 1992)
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The General Services Administration (GSA) has included an option to extend the term of the contract in order to demonstrate the value it places on quality performance by providing a mechanism for continuing a contractual relationship with a successful Offeror that performs at a level which meets or exceeds GSA's quality performance expectations as communicated to the Contractor, in writing, by the Contracting Officer or designated representative. When deciding whether to exercise the option, the Contracting Officer will consider the quality of the Contractor's past performance under this contract in accordance with 48 CFR 517.207.
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8. DELETE Section H.9 YEAR 2000 WARRANTY COMMERCIAL SUPPLY ITEMS in its entirety and REPLACE with the following:
H.9 YEAR 2000 WARRANTY COMMERCIAL SUPPLY ITEMS (I-FSS-550-A)(AUG 1997)
As used in this clause, "Year 2000 compliant" means information technology that accurately processes date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty- first centuries, and the years 1999 and 2000 and leap year calculations. Furthermore, Year 2000 compliant information technology, when used in combination with other information technology, shall accurately process date/time if the other information technology properly exchanges date/time data with it.
(a) All currently awarded products that are not Year 2000 compliant must be deleted from this contract no later than December 31, 1999.
(b) Any contract modifications, adding new items under clause 552.243-72, Modifications (Multiple Award Schedule), must meet the warranty requirement in paragraph c, below.
(c) The Contractor warrants that each hardware, software, and firmware product delivered under this contract shall be able to accurately process date data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, including leap year calculations, when used in accordance with the product documentation provided by the Contractor, provided that all listed or unlisted products (e.g. hardware, software, firmware) used in combination with such listed product properly exchange date data with it. If the contract requires that specific listed products must perform as a system in accordance with the foregoing warranty, then that warranty shall apply to those listed products as a system. The duration of this warranty and the remedies-available to the Government for breach of this warranty shall be as defined in, and subject to, the terms and limitations of the Contractor's standard commercial warranty or warranties contained in this contract, provided that notwithstanding any provision to the contrary in such commercial warranty or warranties, the remedies available to the Government under this warranty shall include repair or replacement of any
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document listed product whose non-compliance is discovered and made known to the Contractor in writing within ninety (90) days after acceptance. Nothing in this warranty shall be construed to limit
Modification Page 19 of 53 Pages any rights or remedies the Government may otherwise have under this contract with respect to defects other than Year 2000 performance.
9. DELETE Section 1.4 EXAMINATION OF RECORDS BY GSA in its entirety and REPLACE with the following:
I.4 EXAMINATION OF RECORDS BY GSA (MULTIPLE AWARD SCHEDULE) (GSAR 552.215-71) (AUG 1997)
The Contractor agrees that the Administrator of General Services or any duly authorized representative shall have access to and the right to examine any books, documents, papers and records of the Contractor involving transactions related to this contract for overbillings, billing errors, compliance with the Price Reductions clause and--compliance with the Industrial Funding Fee clause of this contract. This authority shall expire 3 years after final payment. The basic contract and each option shall be treated as separate contracts for purposes of applying this clause.
10. DELETE Section 1.6 PAYMENTS BY ELECTRONIC FUNDS TRANSFER in its entirety and REPLACE with the following:
I.6 INVOICE PAYMENTS (GSAR 552.232-70).(MAR 1998)
(a) The due date for making invoice payments by the designated payment office is:
(1) For orders placed electronically by the General Services Administration (GSA) Federal Supply Service(FSS), and to be paid by GSA through electronic funds transfer (EFT), the later of the following two events:
(i) The 10th day after the designated billing office receives a proper invoice from the contractor. If the designated billing office fails to annotate the invoice with the date of receipt at the time of receipt, the invoice payment due date shall be the 10th day after the date of the Contractor's invoice; provided the Contractor submitted a proper invoice and no disagreements exists over quantity, quality, or Contractor compliance with contract requirements.
(ii) The 10th day after Government acceptance of supplies delivered or services performed by the Contractor.
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) For all other orders, the later of the following two events:
(i) The 30th day after the designated billing office receives a proper invoice from the Contractor. If the designated billing office fails to annotate the invoice with the date of receipt at the time of receipt, the invoice payment due date shall be the 30th day after the date of the Contractor's invoice; provided the Contractor submitted a proper invoice and no disagreement exists over quantity, quality, or Contractor compliance with contract requirements.
(ii) The 30th day after Government acceptance of supplies delivered or services performed by the Contractor.
(3) On a final invoice, if the payment amount is subject to contract settlement actions, acceptance occurs on the effective date of the contract settlement.
(b) The General Services Administration will issue payment on the due date in (a)(1) above if the Contractor complies with full cycle electronic commerce. Full cycle electronic commerce includes all the following elements:
(1) The Contractor must receive and fulfill electronic data interchange (EDI) purchase orders (transaction set 850).
(2) The Contractor must generate and submit to the Government valid EDI invoices (transaction set 810).
(3) The Contractor's financial institution must receive and process, on behalf of the Contractor, EFT payments through the Automated Clearing House (ACH) system.
(4) The EDI transaction sets in (b)(1) through (b)(3) above must adhere to implementation conventions provided by GSA.
(c) If any of the conditions in (b) above do not occur, the 10 day payment due dates in (a)(1) become 30 day payment due dates.
(d) All other provisions of the Prompt Payment Act (31 U.S.C. 3901 et seq.) and Office of Management and Budget (OMB) Circular A-125, Prompt Payment, apply.
Modification Page 21 of 53 Pages
11. DELETE Section 1.7 PAYMENT BY CREDIT CARD in its entirety and REPLACE with the following:
I.7 PAYMENT BY PURCHASE CARD (GSAR 552.232-80) (DEC 1989) (VARIATION I) (MAR 1998)
(a) Definitions: "Government purchase card" means the uniquely numbered credit
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document card issued to named individual Government employees or entities to pay for official Government purchases. "Oral delivery order" means an order placed orally either in person or by telephone, which is paid for by Government purchase card.
(b) Contractors are required to accept the Government purchase card for payments equal to or less than the micro-purchase threshold for oral or written delivery orders. This is not intended to limit the acceptance of the Government purchase card under this contract for dollar amounts that exceed this threshold if otherwise agreeable between the Contractor and the customer; therefore, Contractors are encouraged to accept payment by the Government purchase card for all orders. If the Contractor is unwilling to accept payment by the Government purchase card for a delivery order, the Contractor must so advise the ordering agency within 24 hours of receipt of order.
(c) The Contractor shall not process a transaction for payment through the credit card clearinghouse until the purchased supplies have been shipped or services performed. Unless the cardholder requests correction or replacement of a defective or faulty item in accordance with other contract requirements, the Contractor shall immediately credit a cardholder's account for items returned as defective or faulty.
12. DELETE Section 1.13 INVOICE REQUIREMENTS in its entirety and REPLACE with the following:
I.13 INVOICE
The Contractor shall submit an original invoice and three copies (or electronic invoice, if authorized,) to the address designated 141 the delivery or task order to receive invoices. An invoice must include-
(1) Name and address of the Contractor; (2) Invoice date; (3) Contract number, contract line item number and, if applicable, the order number;
Modification Page 22 of 53 Pages
(4) Description, quantity, unit of measure, unit price and extended price of the items delivered; (5) Shipping number and date of shipment including the bill of lading number and weight of shipment if shipped on Government bill of lading;
(6) Terms of any prompt payment discount offered; (7) Name and address of official to whom payment is to be sent; and (8) Name, title, and phone number of person to be notified in event of defective invoice.
Invoices will be handled in accordance with the Prompt Payment Act (31 U.S.C.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3903) and Office of Management and Budget (OMB) Circular A-125, Prompt Payment. Contractors are encouraged to assign an identification number to each invoice.
13. DELETE Section 1.25 INDUSTRIAL FUNDING FEE in its entirety and REPLACE with the following:
I.25 INDUSTRIAL FUNDING FEE (G5AR 552.238-77) {FEB 1998) (FC: DEVIATION--DEC 1997))
(a) The Contractor must pay the Federal Supply Service, GSA, an Industrial Funding Fee (IFF). The Contractor must remit the IFF in U.S. dollars within 30 days after the end of each quarterly reporting period as established in clause 552.238-72, Contractor's Report of Sales. The IFF equals one percent (1%) of the total quarterly sales reported. The IFF reimburses the GSA Federal Supply Service for the costs of operating the Federal Supply Schedules Program. Offerors should include the IFF in the prices submitted with their offer. The fee is included in the award price(s) and reflected in the total amount charged to ordering activities; consequently, GSA's costs are recouped from these ordering activities.
(b) The Contractor must remit any monies due as a result of the close out report required by Clause 552.238-72 at the time the close out report is submitted to GSA.
(c) The IFF amount due must be paid by check, or electronic funds transfer through the Automated Clearing House (ACH), to the "General Services Administration." If the payment involves multiple special item numbers or contracts, the Contractor may consolidate the IFFs into one payment. To ensure that the payment is credited properly, the Contractor shall identify the check or electronic transmission as an "Industrial Funding Fee" and include the following information: contract number(s);
Modification Page 23 of 53 Pages report amount(s); and report period(s). If the Contractor makes payment by check, provide this information on either the check, check stub, or other remittance material.
(1) If the payment is made by check, it shall be forwarded to the following address:
General Services Administration Accounts Receivable Branch (6BCR) P.O. Box 70500 Chicago, IL 60673-0500
(2) If the IFF payment is made by electronic funds transfer through ACH, the Contractor must call GSA, Financial Information Control Branch, Receivables, Collections and Sales Section (6BCDR) at (contracting officer to insert phone number) to make arrangements.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) If the full amount of the IFF is not paid within 30 calendar days after the end of the applicable reporting period, it shall constitute a contract debt to the United States Government under the terms of FAR 32.6. The Government may exercise all rights under the Debt Collection Act of 1982, including withholding or setting off payments and interest on the debt (see FAR 52.232-17, Interest).
(e) Failure to submit sales reports, falsification of sales reports, and/or failure to pay the IFF in a timely manner may result in termination or cancellation of this contract. Willful failure or refusal to furnish the required reports, falsification of sales reports, or failure to make timely payment of the IFF constitutes sufficient cause for terminating the contract for cause under the termination provisions of this contract.
14. ADD to the end of Section I - CONTRACT CLAUSES the following clauses:
I.28 PLACEMENT OF ORDERS (GSAR 552.216-73) (JUN 1994) (ALTERNATE II-JUN 1994) (DEVIATION)
(a) Delivery orders under this contract may be placed by entities authorized to do so by the Scope of Contract clause (see C.2).
(b) Orders may be placed through Electronic Data Interchange (EDI) or mailed in paper form. EDI orders shall be placed using the American National Standards Institute (ANSI) X12 Standard for Electronic Data Interchange (EDI) format.
Modification Page 24 of 53 Pages
(c) If the Contractor agrees, GSA's Federal Supply Service (FSS) will place all orders by EDI using computer-to-computer EDI. If computer-to-computer EDI is not possible, FSS will use an alternative EDI method allowing the Contractor to receive orders by facsimile transmission. Subject to the Contractor's agreement, other agencies may place orders by EDI.
(d) When computer-to-computer EDI procedures will be used to place orders, the Contractor shall enter into one or more Trading Partner Agreements (TPA) with each Federal agency placing orders electronically in order to ensure mutual understanding by the parties of certain electronic transaction conventions and to recognize the rights and responsibilities of the parties as they apply to this method of placing orders. The TPA must identify, among other things, the third party provider(s) through which electronic orders are placed, the transaction sets used, security procedures, and guidelines for implementation. Federal agencies may obtain a sample format to customize as needed from the office specified in (g) below.
(e) The Contractor shall be responsible for providing its own hardware and software necessary to transmit and receive data electronically. Additionally, each party to the TPA shall be responsible for the costs associated with its use
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of third party provider services.
(f) Nothing in the TPA will invalidate any part of this contract between the Contractor and the General Services Administration. All terms and conditions of this contract that otherwise would be applicable to a mailed order shall apply to the electronic order.
(g) The basic content and format of the TPA will be provided by:
General Services Administration Systems Inventory and Operations Management Center (FCS) Washington, DC 20406
Telephone: (703) 305-7741 FAX: (703) 305-7720
I.29 CONTRACT SALES CRITERIA (I-FSS-639) (MAR 1998)
A contract will not be awarded unless anticipated sales are expected to exceed $25,000 for a 1-year period. Resultant contracts will be canceled in accordance with the cancellation clause unless reported sales are $25,000 for each 12 month period from date of award and every 12 month period thereafter.
Modification Page 25 of 53 Pages
15. DELETE Section K.16 COST ACCOUNTING STANDARDS NOTICES AND CERTIFICATION and REPLACE with the following:
R.16 RESERVED
16. DELETE Section L.10 SIC CODES AND SMALL BUSINESS SIZE STANDARD in its entirety and REPLACE with the following:
L.10 STANDARD INDUSTRIAL CLASSIFICATION (SIC) CODE AND SMALL BUSINESS SIZE STANDARD (BLOCK 10, STANDARD FORM 1449)
(a) The standard industrial classification (SIC) codes for this acquisition and the small business size standards per FAR 19.102, are as follows:
SIC DESCRIPTION SIZE
DIVISION D - MANUFACTURING
MAJOR GROUP 27 - PRINTING, PUBLISHING, AND ALLIED INDUSTRIES 2741 MISCELLANEOUS PUBLISHING 500
MAJOR GROUP 35 - INDUSTRIAL AND COMMERCIAL MACHINERY AND COMPUTER EQUIPMENT 3571 ELECTRONIC COMPUTERS 1,000 3572 COMPUTER STORAGE DEVICES 1,000
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3575 COMPUTER TERMINALS 1,000 3577 COMPUTER PERIPHERAL EQUIPMENT, N.E.C. 1,000
MAJOR GROUP 36 - ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT AND COMPONENTS
3643 CURRENT-CARRYING WIRING DEVICES 500 3644 NONCURRENT-CARRYING WIRING DEVICES 500 3651 HOUSEHOLD AUDIO AND VIDEO EQUIPMENT 750 3661 TELEPHONE AND TELEGRAPH APPARATUS 1,000 3663 RADIO AND TELEVISION BROADCASTING AND COMMUNICATIONS EQUIPMENT - 750 3669 OTHER COMMUNICATIONS EQUIPMENT, N.E.C. 750
Modification Page 26 of 53 Pages
DIVISION E - TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS, AND SANITARY SERVICES
MAJOR GROUP 48 - COMMUNICATIONS 4812RADIOTELEPHONE COMMUNICATIONS 1,500 4813TELEPHONE COMMUNICATIONS, EXCEPT RADIOTELEPHONE 1,500 4822TELEGRAPH AND OTHER MESSAGE COMMUNICATIONS $ 5.0 4899COMMUNICATIONS SERVICES, N.E.C. $11.0
DIVISION F - WHOLESALE TRADE MAJOR GROUP 50 - DURABLE GOODS 5045 COMPUTERS AND COMPUTER PERIPHERAL EQUIPMENT AND SOFTWARE $ 500
DIVISION I - SERVICES MAJOR GROUP 73 - BUSINESS SERVICES
7359 EQUIPMENT RENTAL AND LEASING, N.E.C. $ 5.0 7371 COMPUTER PROGRAMS $ 18.0 7372 PREPACKAGED SOFTWARE $ 18.0 7373 COMPUTER INTEGRATED SYSTEMS DESIGN $ 18.0 7374 COMPUTER PROCESSING AND DATA PREPARATION AND PROCESSING SERVICES $ 18.0 7375 INFORMATION RETRIEVAL SERVICES $ 18.0 7376 COMPUTER FACILITIES MANAGEMENT SERVICES 18.0 7377 COMPUTER RENTAL AND LEASING $ 18.0 7378 COMPUTER MAINTENANCE AND REPAIR $ 18.0 7379 COMPUTER RELATED SERVICES, N.E.C. $ 18.0 7389 BUSINESS SERVICES, N.E.C. $ 5.0
NOTES: SIZE STANDARDS PRECEDED BY A DOLLAR SIGN ($) ARE IN MILLIONS OF DOLLARS. ALL OTHERS ARE IN NUMBER OF EMPLOYEES UNLESS SPECIFIED OTHERWISE. N.E.C.: NOT
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ELSEWHERE CLASSIFIED.
(b) The small business size standard for a concern which submits an offer in its own name, other than on a construction or service contract, but which proposes to furnish a product which it did not itself manufacture, is 500 employees.
(c) If the Offeror represents different business sizes than indicated in paragraph G.l(c) for any proposed SIN, indicate below the SIC code and the business size.
Modification Page 27 of 53 Pages->
Special Item Number Standard Industry Business (SIN) Classification (SIC) Size
132-3 Leasing of Equipment 132-8 Purchase of Equipment 132-12 Maintenance of Equipment, Repair Service and/or Repair/Spare Parts 132-32 Term Software License 132-33 Perpetual Software License 132-34 Maintenance of Software 132-50 Training Courses 132-51 Professional Information Technology Services. 132-52 Electronic Commerce Services
17. DELETE from ATTACHMENT I the section entitled INFORMATION FOR ORDERING OFFICES and REPLACE with the following:
INFORMATION FOR ORDERING OFFICES
SPECIAL NOTICE TO AGENCIES:
Small Business Participation
SBA strongly supports the participation of small business concerns in the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Federal Supply Schedules Program. To enhance Small Business Participation SBA policy allows agencies to include in their procurement base and goals, the dollar value of orders expected to be placed against the Federal Supply schedules, and to report accomplishments against these goals.
For orders exceeding the micropurchase threshold, FAR 8.404 requires agencies to consider the catalogs/pricelists of at least three schedule contractors or consider reasonably available
Modification Page 28 of 53 Pages information by using the GSA Advantage!TM on-line shopping service (www.fss.gsa.gov). The catalogs/pricelists, GSA Advantage!TM and the Federal Supply Service Home Page (www.fss.gsa.gov) contain information on a broad array of products and services offered by small business concerns.
This information should be used as a tool to assist ordering activities in meeting or exceeding established small business goals. It should also be used as a tool to assist in including small, small disadvantaged, and women-owned small businesses among those considered when selecting pricelists for a best value determination.
For orders exceeding the micropurchase threshold, customers are to give preference to small business concerns when two or more items at the same delivered price will satisfy their requirement.
1. Geographic Scope of Contract:
**The minimum acceptable geographic scope of contract is the 48 contiguous states and the District of Columbia. If the scope includes Alaska, Hawaii, or the Commonwealth of Puerto Rico, identify these locations. Any overseas locations must also be specifically identified.**
2. Contractor's Ordering Address and Payment Information:
**The Contractor should insert the complete address(es) for ordering (see paragraph G.8) and payment (see paragraph G.10.**
Contractors are required to accept the Government purchase card for payments equal to or less than the micro-purchase threshold for oral or written delivery orders. Government purchase cards will/will not be acceptable for payment above ---- the micro-purchase threshold. In addition, bank account information for wire transfer payments will be shown on the invoice.
**Choose the appropriate language "will" or "will not" in the second sentence. Copy the first and third sentence.**
The following telephone number(s) can be used by ordering agencies to obtain
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document technical and/or ordering assistance:
**Insert the telephone numbers.** (301) 459-2650
Modification Page 29 of 53 Pages
3. LIABILITY FOR INJURY OR DAMAGE
The Contractor shall not be liable for any injury to Government personnel or damage to Government property arising from the use of equipment maintained by the Contractor, unless such injury or damage is due to the fault or negligence of the Contractor.
4. Statistical Data for Government Ordering Office Completion of Standard Form 279:
Block 9: G. Order/Modification Under Federal Schedule Block 16: Data Universal Numbering System (DUNS) Number: 11-807-6561 Block 30: Type of Contractor - A
**Copy the applicable letter and corresponding language from the following list**
A. Small Disadvantaged Business 8. Other Small Business C. Large Business G. Other Nonprofit Organization L. Foreign Contractor
Block 31: Woman-Owned Small Business - NO **Yes or No**
Block 36: Contractors Taxpayer Identification Number (TIN) 51-275037 4a. CAGE Code: OMOC7
**CAGE Codes are assigned by the Defense Logistics Agency. If you do not currently have a CAGE Code, GSA will supply you with the form necessary to obtain a CAGE Code at a later date.**
5. FOB Destination
6. DELIVERY SCHEDULE a. TIME OF DELIVERY: The Contractor shall deliver to destination within the number of calendar days after receipt of order (ARO), as set forth below:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SPECIAL ITEM NUMBER DELIVERY TIME (Days ARO) 132-8 90 or as negotiated 132-33 90 or as negotiated
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**NOTE: The Time of Delivery stated should be identical to that shown under paragraph B.2, PRODUCTS AND SERVICES OFFERED/SCHEDULE OF ITEMS. If Expedited Delivery and/or Overnight and 2-Day Delivery are offered under paragraph C.12, COMMERCIAL DELIVERY SCHEDULE (MULTIPLE AWARD SCHEDULE), provide information in this section of the pricelist.**
N/A b. URGENT REQUIREMENTS: When the Federal Supply Schedule contract delivery period does not meet the bona fide urgent delivery requirements of an ordering agency, agencies are encouraged, if time permits, to contact the Contractor for the purpose of obtaining accelerated delivery. The Contractor shall replay to the inquiry within 3 workdays after receipt. (Telephonic replies shall be confirmed by the Contractor in writing.) If the Contractor offers an accelerated delivery time acceptable to the ordering agency, any order(s) placed pursuant to the agreed upon accelerated delivery time frame shall be delivered within this shorter delivery time and in accordance with all other terms and conditions of the contract .
7. Discounts: Prices shown are NET Prices; Basic Discounts have been deducted. a. Prompt Payment: 0% - n/a Net 30 days from receipt of invoice or date of acceptance, whichever is later. b. Quantity c. Dollar Volume d. Government Educational Institutions
**If Government Educational Institutions as offered special discounts, which are greater than the discounts offered to other Government customers, specify such discounts. Otherwise, state that Government Educational Institutions are offered the same discounts as all other Government customers.** e. Other
**Provide complete information to explain all of the discounts offered. Copy the language in paragraphs "a" through "f" as applicable to your proposal.**
Modification Page 31 of 53 Pages
8. Trade Agreements Act of 1979, as amended:
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document All items are U.S. made end products, designated country end products, Caribbean Basin country end products, Canadian end products, or Mexican end products as defined in the Trade Agreements Act of 1979, as amended.
9. Statement Concerning Availability of Export Packing:
NONE
10. Sma11 Requirements: The minimum dollar value of orders to be issued is $100.
**See C.9, ORDER LIMITATIONS, paragraph (a) Minimum Order.**
11. Maximum Order: (All dollar amounts are exclusive of any discount for prompt payment.) a. Special Item-Number 132-3 - Leasing of Equipment
The maximum dollar value per order for all leased equipment will be $500,000. b. Special Item Number 132-8 - Purchase of Equipment
The maximum dollar value per order for all purchased equipment will be $500,000. c. Special Item Number 132-12 - Repair Parts/Spare Parts
The maximum dollar value per order for all repair parts/spare parts will be $10,000. d. Special Item Number 132-32 - Term Software Licenses
The maximum dollar value per order for all term software licenses will be $50,000 or $500,000. e. Special Item Number 132-33 - Perpetual Software Licenses
The maximum dollar value per order for all perpetual software licenses will be $50,000 or $500,000. f. Special Item Number 132-50 - Training Courses
The maximum dollar value per order for all training courses will be S25,000.
Modification Page 32 of 53 Pages g. Special Item Number 132-51 - Information Technology (IT) Professional Services
The maximum dollar value per order for all IT Professional services will be
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document $500,000. h. Special Item Number 132-52 - Electronic Commerce (EC) Services
The maximum dollar value per order for all EC services will be $500,000.
Note: Maximum Orders do not apply to Special Item Numbers 132-12 Maintenance and Repair Service (except for Repair Parts/Spare Parts) or 132-34 Maintenance of Software.
12. USE OF FEDERAL SUPPLY SERVICE INFORMATION TECHNOLOGY SCHEDULE CONTRACTS. In accordance with FAR 8.404:
[NOTE: Special ordering procedures have been established for Special Item Numbers (SINs) 132-51 IT Professional Services and 132-52 EC Services; refer to the terms and conditions for those SINs.]
Orders placed pursuant to a Multiple Award Schedule (MAS), using the procedures in FAR 8.404, are considered to be issued pursuant to full and open competition. Therefore, when placing orders under Federal Supply Schedules, ordering offices need not seek further competition, synopsize the requirement, make a separate determination of fair and reasonable pricing, or consider small business set- asides in accordance with subpart 19.5. GSA has already determined the prices of items under schedule contracts to be fair and reasonable. By placing an order against a schedule using the procedures outlined below, the ordering office has concluded that the order represents the best value and results in the lowest overall cost alternative (considering price, special features, administrative costs, etc.) to meet the Government's needs. a. Orders placed at or below the micro-purchase threshold. Ordering offices can place orders at or below the micro-purchase threshold with any Federal Supply Schedule Contractor. b. Orders excluding the micro-purchase threshold but not exceeding the maximum order threshold. Orders should be placed with the Schedule Contractor that can provide the supply or service that represents the best value. Before placing an order, ordering offices should consider reasonably available information
Modification Page 33 of 53 Pages about the supply or service offered under MAS contracts by using the "GSA Advantage!" on-line shopping service, or by reviewing the catalogs/pricelists of at least three Schedule Contractors and selecting the delivery and other options available under the schedule that meets the agency's needs. In selecting the supply or service representing the best value, the ordering office may consider--
(1) Special features of the supply or service that are required in effective program performance and that are not provided by a comparable supply or service;
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) Trade-in considerations;
(3) Probable life of the item selected as compared with that of a comparable item;
(4) Warranty considerations;
(5) Maintenance availability;
(6) Past performance; and
(7) Environmental and energy efficiency considerations. c. Orders exceeding the maximum order threshold. Each schedule contract has an established maximum order threshold. This threshold represents the point where it is advantageous for the ordering office to seek a price reduction. In addition to following the procedures in paragraph b, above, and before placing an order that exceeds the maximum order threshold, ordering offices shall--
(1) Review additional Schedule Contractors' catalog pricelists or use the "GSA Advantage!" on-line shopping service;
(2) Based upon the initial evaluation, generally seek price reductions from the Schedule Contractor(s) appearing to provide the best value (considering price and other factors); and
(3) After price reductions have been sought, place the order with the Schedule Contractor that provides the best value and results in the lowest overall cost alternative. If further price reductions are not offered, an order may still be placed, 8 if the ordering office determines that it is appropriate.
Modification Page 34 of 53 Pages
NOTE: For orders exceeding the maximum order threshold, the Contractor may:
(1) Offer a new lower price for this requirement (the Price Reductions clause is not applicable to orders placed over the maximum order in FAR 52.216-19 Order Limitations);
(2) Offer the lowest price available under the contract; or
(3) Decline the order (orders must be returned in accordance with FAR 52.216-19). d. Blanket purchase agreements (BPAs). The establishment of Federal Supply Schedule BPAs is permitted when following the ordering procedures in FAR 8.404. All schedule contracts contain BPA provisions. Ordering offices may use BPAs to establish accounts with Contractors to fill recurring requirements. BPAs should address the frequency of ordering and invoicing, discounts, and delivery
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document locations and times. e. Price reductions. In addition to the circumstances outlined in paragraph c, above, there may be instances when ordering offices will find it advantageous to request a price reduction. For example, when the ordering office finds a schedule supply or service elsewhere at a lower price or when a BPA is being established to fill recurring requirements, requesting a price reduction could be advantageous. The potential volume of orders under these agreements, regardless of the size of the individual order, may offer the ordering office the opportunity to secure greater discounts. Schedule Contractors are not required to pass on to all schedule users a price reduction extended only to an individual agency for a specific order. f. Small business. For orders exceeding the micro-purchase threshold, ordering offices should give preference to the items of small business concerns when two or more items at the same delivered price will satisfy the requirement. g. Documentation. Orders should be documented, at a minimum, by identifying the Contractor the item was purchased from, the item purchased, and the amount paid. If an agency requirement in excess of the micro-purchase threshold is defined so as to require a particular brand name, product, or feature of a product peculiar to one manufacturer, thereby precluding consideration of a product manufactured by another company, the
Modification Page 35 of 53 Pages ordering office shall include an explanation in the file as to why the particular brand name, product, or feature is essential to satisfy the agency's needs.
13. FEDERAL INFORMATION TECHNOLOGY/TELECOMMUNICATIONS STANDARDS REQUIREMENTS: Federal departments and agencies acquiring products from this Schedule must comply with the provisions of the Federal Standards Program, as appropriate (reference: NIST Federal Standards Index). Inquiries to determine whether or not specific products listed herein comply with Federal Information Processing Standards (FIPS) or Federal telecommunication Standards (FED-STDS), which are cited by ordering offices, shall be responded to promptly by the Contractor.
13.1 FEDERAL INFORMATION PROCESSING STANDARDS PUBLICATIONS (FIPS PUBS): Information Technology products under this Schedule that do not conform to Federal Information Processing Standards (FIPS) should not be acquired unless a waiver has been granted in accordance with the applicable "FIPS Publication." Federal Information Processing Standards Publications (FIPS PUBS) are issued by the U.S. Department of Commerce, National Institute of Standards and Technology (NIST), pursuant to National Security Act. Information concerning their availability and applicability should be obtained from the National Technical Information Service (NTIS), 5285 Port Royal Road, Springfield, Virginia 22161. FIPS PUBS include voluntary standards when these are adopted for Federal use. Individual orders for FIPS PUBS should be referred to the NTIS
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Sales Office, and orders for subscription service should be referred to the NTIS Subscription Officer, both at the above address, or telephone number (703) 487-4650.
13.2 FEDERAL TELECOMMUNICATION STANDARDS (FED STDS): Telecommunication products under this Schedule that do not conform to Federal Telecommunication Standards (FED-STDS) should not be acquired unless a waiver has been granted in accordance with the applicable "FED-STD." Federal telecommunication Standards are issued by the U.S. Department of Commerce, National Institute of Standards and Technology (NIST), pursuant to National Security Act. Ordering information and information concerning the availability of FED-STDS should be obtained from the GSA, Federal Supply Service, Specification Section, 470 East L'Enfant-Plaza, Suite 8100, SW, Washington, DC 20407, telephone number (202)619-8925. Please include a self-addressed mailing label when requesting information by mail. Information concerning their applicability can be obtained by writing or calling the U.S. Department of Commerce, National Institute of Standards and Technology, Gaithersburg, MD 20899, telephone number (301) 975-2833.
Modification Page 36 of 53 Pages
14. SECURITY REQUIREMENTS. In the event security requirements are necessary, the ordering activities may incorporate, in their delivery orders, a security clause in accordance with current laws, regulations, and individual agency policy; however, the burden of administering the security requirements shall be with the ordering agency. If any costs are incurred as a result of the inclusion of security requirements, such costs will not exceed ten percent (10%) or $100,000, of the total dollar value of the order, whichever is lessor.
15. CONTRACT ADMINISTRATION FOR ORDERING OFFICES: Any ordering office, with respect to any one or more delivery orders placed by it under this contract, may exercise the same rights of termination as might the GSA Contracting Officer under provisions of FAR 52.212-4, paragraphs (1) Termination for the Government's convenience, and (m) Termination for Cause (See C.1.)
16. GSA Advantage!
GSA Advantage! is an on-line, interactive electronic information and ordering system that provides on-line access to vendors' schedule prices with ordering information. GSA Advantage! will allow the user to perform various searches across all contracts including, but not limited to:
(1) Manufacturer; (2) Manufacturer's Part Number; and (3) Product categories.
Agencies can browse GSA Advantage! by accessing the Internet Worldwide Web utilizing a browser (ex.: NetScape). The Internet address is http://www.fss.gsa.gov/.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 17. PURCHASE OF INCIDENTAL, NON-SCHEDULE ITEMS
For administrative convenience, open market (non-contract) items may be added to a Federal Supply Schedule Blanket Purchase Agreement (BPA) or an individual order, provided that the items are clearly labeled as such on the order, all applicable regulations have been followed, and price reasonableness has been determined by the ordering activity for the open market (non-contract) items.
18. CONTRACTOR COMMITMENTS, WARRANTIES AND REPRESENTATIONS a. For the purpose of this contract, commitments, warranties and representations include, in addition to those agreed to for the entire schedule contract:
Modification Page 37 of 53 Pages
(1) Time of delivery/installation quotations for individual orders;
(2) Technical representations and/or warranties of products concerning performance, total system performance and/or configuration, physical, design and/or functional characteristics and capabilities of a product/equipment/service/software package submitted in response to requirements which result in orders under this schedule contract.
(3) Any representations and/or warranties concerning the products made in any literature, description, drawings and/or specifications furnished by the Contractor. b. The above is not intended to encompass items not currently covered by the GSA Schedule contract.
19. OVERSEAS ACTIVITIES
The terms and conditions of this contract shall apply to all orders for installation, maintenance and repair of equipment in areas listed in the pricelist outside the 48 contiguous states and the District of Columbia, except as indicated below:
______
Upon request of the Contractor, the Government may provide the Contractor with logistics support, as available, in accordance with all applicable Government regulations. Such Government support will be provided on a reimbursable basis, and will only be provided to the Contractor's technical personnel whose services are exclusively required for the fulfillment of the terms and conditions of this contract.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 20. YEAR 2000 WARRANTY - COMMERCIAL SUPPLY ITEMS (I-FSS-550-A)(AUG 1997)
As used in this clause, "Year 2000 compliant" means information technology that accurately processes date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year calculations. Furthermore, Year 2000 compliant information technology, when used in combination with other information technology, shall accurately process date time if the other information technology properly exchanges date/time data with it.
Modification Page 38 of 53 Pages.
(a) All currently awarded products that are not Year 2000 compliant must be deleted from this contract no later than December 31, 1999.
(b) Any contract modifications, adding new items under clause 552.243-72, Modifications (Multiple Award Schedule), must meet the warranty requirement in paragraph c, below.
(c) The Contractor warrants that each hardware, software, and firmware product delivered under this contract shall be able to accurately process date data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, including leap year calculations, when used in accordance with the product documentation provided by the Contractor, provided that all listed or unlisted products (e.g. hardware, software, firmware) used in combination with such listed product properly exchange date data with it. If the contract requires that specific listed products must perform as a system in accordance with the foregoing warranty, then that warranty shall apply to those listed products as a system. The duration of this warranty and the remedies available to the Government for breach of this warranty shall be as defined in, and subject to, the terms and limitations of the Contractor's standard commercial warranty or warranties contained in this contract, provided that notwithstanding any provision to the contrary in such commercial warranty or warranties, the remedies available to the Government under this warranty shall include repair or replacement of any listed product whose non-compliance is discovered and made known to the Contractor in writing within ninety (90) days after acceptance. Nothing in this warranty shall be construed to limit any rights or remedies the Government may otherwise have under this contract with respect to defects other than Year 2000 performance.
21. BLANKET PURCHASE AGREEMENTS (BPAs)
Federal Acquisition Regulation (FAR) 13.201(a) defines Blanket Purchase Agreements (BPAs) as "...a simplified method of filling anticipated repetitive needs for supplies or services by establishing 'charge accounts' with qualified sources of supply." The use of Blanket Purchase Agreements under the Federal
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Supply Schedule Program is authorized in accordance with FAR 13.202(c)(3), which reads, in part, as follows:
"BPAs may be established with Federal Supply Schedule Contractors, ( if not inconsistent with the terms of the applicable schedule contract."
Modification Page 39 of 53 Pages
Federal Supply Schedule contracts contain BPA provisions to enable schedule users to maximize their administrative and purchasing savings. This feature permits schedule users to set up "accounts" with Schedule Contractors to fill recurring requirements. These accounts establish a period for the BPA, and generally address issues such as the frequency of ordering and invoicing, authorized callers, discounts, delivery locations and times. Agencies may qualify for the best quantity/volume discounts available under the contract, based on the potential volume of business that may be generated through such an agreement, regardless of the size of the individual orders. In addition, agencies may be able to secure a discount higher than that available in the contract based on the aggregate volume of business possible under a BPA. Finally, Contractors may be open to a progressive type of discounting where the discount would increase once the sales accumulated under the BPA reach certain prescribed levels. Use of a BPA may be particularly useful with the new Maximum Order feature. See the Suggested Format, contained in this Schedule Pricelist, for customers to consider when using this purchasing tool.
22. CONTRACTOR TEAM ARRANGEMENTS
Federal Supply Schedule Contractors may use "Contractor Team Arrangements" (see FAR 9.6) to provide solutions when responding to a customer agency requirements. The policy and procedures outlined in this part will provide more flexibility and allow innovative acquisition methods when using the Federal Supply Schedules. See the additional information regarding Contractor Team Arrangements in this Schedule Pricelist.
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18. DELETE from ATTACHMENT I the section entitled TERMS AND CONDITIONS APPLICABLE TO INFORMATION TECHNOLOGY PROFESSIONAL SERVICES (SPECIAL ITEM 132-51) AND ELECTRONIC COMMERCE SERVICES (SPECIAL ITEM 132-52) FOR GENERAL PURPOSE INFORMATION TECHNOLOGY SERVICES and REPLACE with the following:
TERMS AND CONDITIONS APPLICABLE TO INFORMATION TECHNOLOGY (IT) PROFESSIONAL SERVICES (SPECIAL ITEM NUMBER 132-51) AND ELECTRONIC COMMERCE (EC) SERVICES (SPECIAL ITEM NUMBER 132-52)
**The phrase, "Information Technology (IT) Professional Services/Electronic Commerce (EC) Services" in the following; paragraphs may need to be revised in
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document order to be consistent with the Offeror's proposal; e.g., if only IT Professional Services are offered, all references to EC Services should be deleted.**
1. SCOPE a. The prices, terms and conditions stated under Special Item Number 132-51 Information Technology Professional Services and Special Item Number 132-52 Electronic Commerce Services apply exclusively to IT/EC Services within the scope of this Information Technology Schedule. b. The Contractor shall provide services at the Contractor's facility and/or at the Government location, as agreed to by the Contractor and the ordering office.
**NOTE: Include paragraph 2, only if hourly rates for IT Professional Services are offered.**
2. ORDERING PROCEDURES a. Procedures for IT professional services priced on GSA schedule at hourly rates.
(1) FAR 8.402 contemplates that GSA may occasionally find it necessary to establish special ordering procedures for individual Federal Supply Schedules or for some Special Item Numbers (SINs) within a Schedule. GSA has established special ordering procedures for IT professional services (SIN 132-51)
Modification Page 41 of 53 Pages that are priced on schedule at hourly rates. These special ordering procedures which are outlined herein take precedence over the procedures in FAR 8.404.
(2) The GSA has determined that the rates for IT professional services contained in this pricelist are fair and reasonable. However, the ordering office using this contract is responsible for considering the level of effort and mix of labor proposed to perform a specific task being ordered and for making a determination that the total firm-fixed price or ceiling price is fair and reasonable.
(3) When ordering IT professional services ordering offices shall
(i) Prepare a Request for quotation:
(A) A performance-based statement of work that outlines, at a minimum, the work to be performed, location of work, period of performance, deliverable schedule, applicable standards, acceptance criteria, and any special requirements (i.e., security clearances, travel, special knowledge, etc.) should be prepared.
(B) A request for quotation should be prepared which includes the performance-
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document based statement of work and requests the contractors submit either a firm-fixed price or a ceiling price to provide the services outlined in the statement of work. A firm-fixed price order shall be requested, unless the ordering office makes a determination that it is not possible at the time of placing the order to estimate accurately the extent or duration of the work or to anticipate cost with any reasonable degree of confidence. When such a determination is made, a labor hour or time-and-materials-proposal may be requested. The firm fixed price shall be based on the hourly rates in the schedule contract and shall consider the mix of labor categories and level of effort required to perform the services described in the statement of work. The firm-fixed price of the order should also include any travel costs or other incidental costs related to performance of the services ordered, unless the order provides for reimbursement of travel costs at the rates provided in the Federal Travel or Joint Travel Regulations. A ceiling price must be established for labor; hour and time and material orders.
(C) The request for quotation may request the contractors, if necessary or appropriate, submit a project plan for performing the task and information on the contractor's experience and/or past performance performing similar tasks.
Modification Page 42 of 53 Pages
(D) The request for quotation shall notify the contractors what basis will be used for selecting the contractor to receive the order. The notice shall include the basis for determining whether the contractors are technically qualified and provide an explanation regarding the intended use of any experience and/or past performance information in determining technical acceptability of responses. If consideration will be limited to schedule contractors who are small business concerns as permitted by paragraph (ii)(A) below, the request for quotations shall notify the contractors that will be the case.
(ii) Transmit the Request for quotation to Contractors:
(A) Based upon an initial evaluation of catalogs and pricelists, the ordering office should identify the contractors that appear to offer the best value (considering the scope of services offered, hourly rates and other factors such as contractors' locations, as appropriate). When buying IT professional services under SIN 132-51 ONLY, the ordering office, at its discretion, may limit consideration to those schedule contractors that are small business concerns. This limitation is not applicable when buying supplies and/or services under other SINs as well as SIN 132-51. The limitations may only be used when at least three (3) small businesses that appear to offer services that will meet the agency's needs are available, if the order is estimated to exceed the micro- purchase threshold.
(B)- The request for quotation-should be to three (3) contractors if the proposed order is estimated to exceed the micro-purchase threshold, but not to exceed the maximum order threshold. For proposed orders exceeding the maximum
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document order threshold, the request for quotation should be provided to additional contractors that offer services that will meet the agency's needs. Ordering offices should strive to minimize the contractors' costs associated with responding to requests for proposals for specific orders. Requests should be tailored to the minimum level necessary for adequate evaluation and selection for order placement.
(iii) Evaluate Proposals and select the contractor to receive the order:
After responses have been evaluated against the factors identified in the request for quotation, the order should be placed with the schedule contractor that represents the best value and results in the lowest overall cost alternative (considering price, special qualifications, administrative costs, etc.) to meet the Government's needs.
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(4) The establishment of Federal Supply Schedule Blanket Purchase Agreements (BPAs) for recurring services is permitted when the procedures outlined herein are followed. All BPAs for services must define the services that may be ordered under the BPA, along with delivery or performance time frames, billing procedures, etc. The potential volume of orders under BPAs, regardless of the size of individual orders, may offer the ordering office the opportunity to secure volume discounts. When establishing BPAs ordering offices shall
(i) Inform contractors in the request for quotation (based on the agency's requirement) if a single BPA or multiple BPAs will be established, and indicate the basis that will be used for selecting the contractors to be awarded the BPAs.
(A) SINGLE BPA: Generally, a single BPA should be established when the ordering office can define the tasks to be ordered under the BPA and establish a firm-fixed price or ceiling price for individual tasks or services to be ordered. When this occurs, authorized users may place the order directly under the established BPA when the need for service arises. The schedule contractor that represents the best value and results in the lowest overall cost alternative to meet the agency's needs should be awarded the BPA.
(B) MULTIPLE BPAs: When the ordering office determines multiple BPAs are needed to meet its requirements, the ordering office should determine which contractors can meet any technical qualifications before establishing the BPAs. When multiple BPAs are established, the authorized users must follow the procedure in (3)(ii)(B) above, and then place the order with the schedule contractor that represents the best value and results in the lowest overall cost alternative to meet the agency's needs.
(ii) Review BPAs periodically. Such reviews shall be conducted at least annually. The purpose of the review is to determine whether the BPA still represents the best value (considering price, special qualifications, etc.) and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document results in the lowest overall cost alternative to meet the agency's needs.
(5) The ordering office should give preference to small business concerns when two or more contractors can provide the services at the same firm-fixed price or ceiling price.
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(6) When the ordering office's requirement involves both products as well as IT professional services, the ordering office should total the prices for the products and the firm-fixed price for the services and select the contractor that represents the greatest value in terms of meeting the agency's total needs.
(7) The ordering office, at a minimum, should document orders by identifying the contractor the services were purchased from, the services purchased, and the amount paid. If other than a firm-fixed price order is placed, such documentation should include the basis for the determination to use a labor-hour or time-and-materials order. For agency requirements in excess of the micro-purchase threshold, the order file should document the evaluation of schedule contractors' proposals that formed the basis for the selection of the contractor that received the order and the rationale for any trade-offs made in making the selection. b. Ordering Procedures for other services available on schedule at fixed prices for specifically defined services or tasks.
Orders placed pursuant to a Multiple Award Schedule (MAS), using the procedures in FAR 8.404, are considered to be issued pursuant to full and open competition. Therefore, when placing orders under Federal Supply Schedules, ordering offices need not seek further competition, synopsize the requirement, make a separate determination of fair and reasonable pricing, or consider small business set- asides in accordance with subpart 19.5. GSA has already determined the prices of items under schedule contracts to be fair and reasonable. By placing an order against a schedule using the procedures outlined below, the ordering office has concluded that the order represents the best value and results in the lowest overall cost alternative (considering price, special features, administrative costs, etc.) to meet the Government's needs.
(1) Orders placed at or below the micro-purchase threshold. Ordering offices can place orders at or below the micro-purchase threshold with any Federal Supply Schedule Contractor.
(2) Orders excluding the micro-purchase threshold but not exceeding the maximum order threshold. Orders should be placed with the Schedule Contractor that can provide the supply or service that represents the best value. Before placing an order, ordering offices should consider reasonably available information about the service offered under MAS contracts by using the "GSA Advantage!" on-line shopping service, or by reviewing the, catalogs/pricelists of at
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document least three Schedule Contractors and selecting the delivery and other options available under the
Modification Page 45 of 53 Pages schedule that meets the agency's needs. In selecting the service representing the best value, the ordering office may consider--(i) special features of the service that are required in effective program performance and that are not provided by a comparable service; and (ii) past performance.
(3) Orders exceeding the maximum order threshold. Each schedule contract has an established maximum order threshold. This threshold represents the point where it is advantageous for the ordering office to seek a price reduction. In addition to following the procedures in paragraph b, above, and before placing an order that exceeds the maximum order threshold, ordering offices shall
(i) Review additional Schedule Contractors' catalogs/pricelists or use the "GSA Advantage!" on-line shopping service;
(ii) Based upon the initial evaluation, generally seek price reductions from the Schedule Contractor(s) appearing to provide the best value (considering price and other factors); and
(iii) After price reductions have been sought, place the order with the Schedule Contractor that provides the best value and results in the lowest overall cost alternative. If further price reductions are not offered, an order may still be placed, if the ordering office determines that it is appropriate.
NOTE: For orders exceeding the maximum order threshold, the Contractor may:
(A) Offer a new lower price for this requirement (the Price Reductions clause is not applicable to orders placed over the maximum order in FAR 52.216-19 Order Limitations);
(B) Offer the lowest price available under the contract; or
(C) Decline the order (orders must be returned in accordance with FAR 52.216-19).
(4) Blanket purchase agreements (BPAs). The establishment of Federal Supply Schedule BPAs is permitted when following the ordering procedures in FAR 8.404. All schedule contracts contain BPA provisions. Ordering offices may use BPAs to establish accounts with Contractors to fill recurring requirements. BPAs should address the frequency of ordering and invoicing, discounts, and delivery locations and times.
Modification Page 46 of 53 Pages
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (5) Price reductions. In addition to the circumstances outlined in paragraph (3), above, there may be instances when ordering offices will find it advantageous to request a price reduction. For example, when the ordering office finds a schedule service elsewhere at a lower price or when a BPA is being established to fill recurring requirements, requesting a price reduction could be advantageous. The potential volume of orders under these agreements, regardless of the size of the individual order, may offer the ordering office the opportunity to secure greater discounts. Schedule Contractors are not required to pass on to all schedule users a price reduction extended only to an individual agency for a specific order.
(6) Small business. For orders exceeding the micro purchase threshold, ordering offices should give preference to the items of small business concerns when two or more items at the same delivered price will satisfy the requirement.
(7) Documentation. Orders should be documented, at all, minimum, by identifying the Contractor the item was purchased from, the item purchased, and the amount paid. If an agency requirement in excess of the micro-purchase threshold is defined so as to require a particular brand name, product, or feature of a product peculiar to one manufacturer, thereby precluding consideration of a product manufactured by another company, the ordering office shall include an explanation in the file as to why the particular brand name, product, or feature is essential to satisfy the agency's needs.
3. ORDER a. Agencies may use written orders, EDI orders, blanket purchase agreements, individual purchase orders, or task orders for ordering services under this contract. Blanket Purchase Agreements shall not extend beyond the end of the contract period; all services and delivery shall be made and the contract terms and conditions shall continue in effect until the completion of the order. Orders for tasks which extend beyond the fiscal year for which funds are available shall include FAR 52.232-19 Availability of Funds for the Next Fiscal Year. The purchase order shall specify the availability of funds and the period for which funds are available. b. All task orders are subject to the terms and conditions of the contract. In the event of conflict between a task order and the contract, the contract will take precedence.
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4. PERFORMANCE OF SERVICES a. The Contractor shall commence performance of services on the date agreed to by the Contractor and the ordering office.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document b. The Contractor agrees to render services only during normal working hours, unless otherwise agreed to by the Contractor and the ordering office. c. The Contractor guarantees the satisfactory completion of the IT/EC Services performed under the task order and that all contract personnel utilized in the performance of IT/EC services under the task order shall have the education, experience, and expertise as stated in the task order. d. Any Contractor travel required in the performance of IT/EC Services must comply with the Federal Travel Regulation or Joint Travel Regulations, as applicable, in effect on the date(s) the travel is performed. Established Federal Government per diem rates will apply to all Contractor travel. Contractors cannot use GSA city pair contracts.
5. INSPECTION OF SERVICE
The Inspection of Services-Fixed Price (AUG 1996) clause at FAR 52.246-4 applies to firm-fixed price orders placed under this contract. The Inspection-Time-and-Materials and Labor-Hour (JAN 1986) clause at FAR 52.246-6 applies to time and materials and labor-hour orders placed under this contract.
6. RESPONSIBILITIES OF THE CONTRACTOR
The Contractor shall comply with all laws, ordinances, and regulations (Federal, State, City, or otherwise) covering work of this character.
7. RESPONSIBILITIES OF THE GOVERNMENT
Subject to security regulations, the ordering office shall permit Contractor access to all facilities necessary to perform the requisite IT/EC Services.
8. INDEPENDENT CONTRACTOR
All IT/EC Services performed by the Contractor under the terms of this contract shall be as an independent Contractor, and not as an agent or employee of the Government.
Modification Page 48 of 53 Pages
9. ORGANIZATIONAL CONFLICTS OF INTEREST a. Definitions.
"Contractor" means the person, firm, unincorporated association, joint venture, partnership, or corporation that is a party to this contract.
"Contractor and its affiliates" and "Contractor or its affiliates" refers to the Contractor, its chief executives, directors, officers, subsidiaries, affiliates, subcontractors at any tier, and consultants and any joint venture involving the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Contractor, any entity into or with which the Contractor subsequently merges or affiliates, or any other successor or assignee of the Contractor.
An "Organizational conflict of interest" exists when the nature of the work to be performed under a proposed Government contract, without some restriction on activities by the Contractor and its affiliates, may either (i) result in an unfair competitive advantage to the Contractor or its affiliates or (ii) impair the Contractor's or its affiliates' objectivity in performing contract work. b. To avoid an organizational or financial conflict of interest and to avoid prejudicing the best interests of the Government, ordering offices may place restrictions on the Contractors, its affiliates, chief executives, directors, subsidiaries and subcontractors at any tier when placing orders against schedule contracts. Such restrictions shall be consistent with FAR 9.505 and shall be designed to avoid, neutralize, or mitigate organizational conflicts of interest that might otherwise exist in situations related to individual orders placed against the schedule contract. Examples of situations, which may require restrictions, are provided at FAR 9.508.
10. INVOICES
The Contractor, upon completion of the work ordered, shall submit invoices for IT/EC services. Progress payments may be authorized by the ordering office on individual orders if appropriate. Progress payments shall be based upon completion of defined milestones or interim products. Invoices shall be submitted monthly for recurring services performed during the preceding month.
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11. PAYMENTS
For firm-fixed price orders the Government shall pay the Contractor, upon submission of proper invoices or vouchers, the prices stipulated in this contract for service rendered and accepted. Progress payments shall be made only when authorized by the order. For time-and-materials orders, the Payments under Time-and-Materials and Labor-Hour Contracts (Alternate I (APR 1984)) at FAR 52.232-7 applies to time-and-materials orders placed under this contract. For labor-hour orders, the Payment under Time-and-Materials and Labor-Hour Contracts (FEB 1997) (Alternate II (JAN 1986)) at FAR 52.232-7 applies to labor-hour orders placed under this contract.
12. RESUMES
Resumes shall be provided to the GSA Contracting Officer or the user agency upon request.
13. INCIDENTAL SUPPORT COSTS
Incidental support costs are available outside the scope of this contract. The
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document costs will be negotiated separately with the ordering agency in accordance with the guidelines set forth in the FAR.
14. APPROVAL OF SUBCONTRACTS
The ordering activity may require that the Contractor receive, from the ordering activity's Contracting Officer, written consent before placing any subcontract for furnishing any of the work called for in a task order.
15. DESCRIPTION OF IT/EC SERVICES AND PRICING
**NOTE TO CONTRACTORS: The information provided below is designed to assist Contractors in providing complete descriptions and pricing information for the IT/EC Services offered. This language should NOT be printed as part of the Information Technology Schedule Pricelist; instead, Contractors should provide the same type of information as it relates to the IT/EC Services offered under the contract.** a. The Contractor shall provide a description of each type of IT/EC Service offered under Special Item Numbers 132-51 and 132-52. IT/EC Services should be presented in the same manner as the Contractor sells to its commercial and other Government
Modification Page 50 of 53 Pages customers. If the Contractor is proposing hourly rates, a description of all corresponding commercial job titles (labor categories) for those individuals who will perform the service should be provided. b. Pricing for all IT/EC Services shall be in accordance with the Contractor's customary commercial practices; e.g., hourly rates, monthly rates, term rates, and/or fixed prices. The following is an Example of the manner in which the description of a commercial job title should be presented:
EXAMPLE:
Commercial Job Title: System Engineer
Minimum General Experience: Three (3) years of technical experience which applies to systems analysis and design techniques for complex computer systems. Requires competence in all phases of systems analysis techniques, concepts and methods; also requires knowledge of available hardware, system software, input/output devices, structure and management practices.
Functional Responsibility: Guides users in formulating requirements, advises alternative approaches, conducts feasibility studies.
Minimum Education: Bachelor's Degree in Computer Science
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 19. ADD the following to the end of the Terms and Conditions and prior to the prices of the FEDERAL SUPPLY SERVICE AUTHORIZED INFORMATION TECHNOLOGY SCHEDULE PRICELIST (formerly known as Attachment I of the solicitation).
**Include the following in the proposed FSS IT Schedule Price-list.**
USA COMMITMENT TO PROMOTE SMALL BUSINESS PARTICIPATION PROCUREMENT PROGRAMS
PREAMBLE
(Name of Company) provides commercial products and services to the Federal Government. We are committed to promoting participation of small, small disadvantaged and women-owned small businesses in our contracts. We pledge to provide opportunities to the small business community through reselling opportunities, mentor-protege programs, joint ventures, teaming arrangements, and subcontracting.
Modification Page 51 of 53 Pages
COMMITMENT
To actively seek and partner with small businesses.
To identify, qualify, mentor and develop small, small disadvantaged and women- owned small businesses by purchasing from these businesses whenever practical.
To develop and promote company policy initiatives that demonstrate our support for awarding contracts and subcontracts to small business concerns.
To undertake significant efforts to determine the potential of small, small disadvantaged and women-owned small business to supply products and services to our company.
To insure procurement opportunities are designed to permit the maximum possible participation of small, small disadvantaged, and women-owned small businesses.
To attend business opportunity workshops, minority business enterprise seminars, trade fairs, procurement conferences, etc., to identify and increase small businesses with whom to partner.
To publicize in our marketing publications our interest in meeting small businesses that may be interested in subcontracting opportunities.
We signify our commitment to work in partnership with small, small disadvantaged and women-owned small businesses to promote and increase their participation in Federal Government contracts. To accelerate potential opportunities please
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document contact (Insert Company Point of contact, phone number, e-mail address, fax number).
Modification Page 52 of 53 Pages
20. In order to assist GSA/FSS in updating our database, please, PROVIDE/UP DATE the following information:
(a) Offerors are to insert the ordering information below:
ORDERING ADDRESS: 4390 Parliament Place, Suite R Lanham, MD ZIP CODE: 20706 ORDERING FACSIMILE: 301-459-9210
(b) Offerors are required to designate a person to be contacted for prompt contract administration.
NAME: Roderick K. Morris TITLE: GSA Contracts Manager ADDRESS: 4390 Parliament Place, Suite R Lanham, MD ZIP CODE: 20706 TELEPHONE NO.: ( 301 ) 459-2650 x4509 FAX NO.:( 301 ) 459-9210 E-MAIL ADDRESS [email protected]
(c) Contractor compliance with the GSA Form 72A reporting requirements and the Industrial Funding Fee will be delegated to a GSA Administrative Contracting Officer. The Contract Management Zone will be determined based upon the location of the individual designated by the Contractor for administration of the contract's GSA Form 72A reporting. The name of this individual, along with the person responsible for questions concerning the Industrial Funding Fee, must be provided by the Contractor prior to the award of a contract.
GSA FORM 72A:
NAME: Roderick K. Morris ADDRESS: 4390 Parliament Place, Suite R Lanham, MD ZIP CODE: 20706 TELEPHONE NO.: (301)459-2560 x4509 FAX NO.: (301 )459-9210 E-MAIL ADDRESS: [email protected]
Modification Page 53 of 53 Pages
INDUSTRIAL FUNDING FEE: NAME: Roderick K. Morris ADDRESS: 4390 Parliament Place, Suite R Lanham, MD ZIP CODE: 20706
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document TELEPHONE NO.: ( 301) 459-2650 Ext. 4509 FAX NO.: ( 301) 459-9210 E-MAIL ADDRESS: [email protected]
THIS PAGE
INTENTIONALLY LEFT BLANK
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.27
DEED OF LEASE AGREEMENT
THIS DEED OF LEASE AGREEMENT (hereinafter referred to as "Lease"), made this 11th day of August 1998, by and between Massachusetts Mutual Life Insurance Company, a corporation organized and existing under the laws of Maryland (hereinafter referred to as the "Landlord") and Pulsar Data Systems, Inc., a Corporation organized and existing under the laws of Maryland, (hereinafter referred to as the "Tenant").
WITNESSETH, THAT FOR AND IN CONSIDERATION of the mutual entry into this Lease by the parties hereto, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by each party hereto, the Landlord hereby leases to the Tenant and the Tenant hereby leases from the Landlord all of that real property, situated and lying in Prince George's County, Maryland, which consists of the space (containing 12,790 rentable square feet of floor area) outlined in Exhibit A attached hereto and made a part hereof (hereinafter referred to as the "Premises") and located in a building (hereinafter referred to as the "Building") at 4390 Parliament Place, Lanham, Maryland (the Premises, the remainder of the Building, such tract of land, other buildings thereon, and any other buildings or improvements to be constructed thereon being hereinafter referred to collectively as the "Property").
SUBJECT TO THE OPERATION AND EFFECT of any and all instruments and matters of record or in fact.
UPON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set forth:
SECTION 1. TERM.
1.1. LENGTH. This Lease shall be for a term (hereinafter referred to as the "Term") (a) commencing on the first day after the date on which the Landlord substantially completes the improvements to be made to the Premises under the provisions of Section 5 and tenders possession thereof to the Tenant (herein- after referred to as the "Commencement Date", except that if the date of such commencement is hereafter advanced or postponed by written agreement of the parties hereto, the date to which it is advanced or postponed shall thereafter be the "Commencement Date"), and (b) terminating at 12:01 A.M., local time, on the fifth (5th) anniversary of the first (1st) day of the first (1st) full calendar month during the Term (hereinafter referred to as the "Termination Date", except that if the date of such termination is hereafter advanced or postponed pursuant to any provision of this Lease, or by written agreement of the parties hereto, the date to which it is advanced or postponed shall thereafter be the Termination Date).
1.2. Taking of possession by Tenant shall be deemed conclusively to
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document establish that said
-1- buildings and other improvements have been completed in accordance with the plans and specifications and that the Premises are in good and satisfactory condition, as of when possession was so taken. Tenant acknowledges that no representations as to the repair of the Premises have been made by Landlord, unless such are expressly set forth in this Lease. After such "Commencement Date" Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises. In the event of any dispute as to substantial completion or work performed or required to be performed by Landlord, the certificate of Landlord's architect or general contractor shall be conclusive.
1.3. SURRENDER. The Tenant shall at its expense, at the expiration of the Term/1// or upon any earlier termination of this Lease, (a) promptly surrender to the Landlord possession of the Premises (including any fixtures or other improvements which, under the provisions of Section 5, are owned by the Landlord) in good order and repair (ordinary wear and tear excepted) and broom clean, (b) remove therefrom the Tenant's signs, goods and effects and any machinery, trade fixtures and equipment used in conducting the Tenant's trade or business and not owned by the Landlord, and (c) repair any damage to the Premises or the Building caused by such removal.
1.4 HOLDING OVER.
1.4.1. If the Tenant continues to occupy the Premises after the expiration of the Term or any earlier termination of this Lease after obtaining the Landlord's express, written consent thereto,
(a) such occupancy shall (unless the parties hereto otherwise agree in writing) be deemed to be under a month-to-month tenancy, which shall continue until either party hereto notifies the other in writing, by at least thirty (30) days before the end of any calendar month, that the notifying party elects to terminate such tenancy at the end of such calendar month, in which event such tenancy shall so terminate;
(b) anything contained in the foregoing provisions of this Section to the contrary notwithstanding, the rental payable for each such monthly period shall equal one-twelfth (1/12) of the Base Rent and the Additional Rent payable under the provisions of subsection 2.2 (calculated in accordance with such provisions of subsection 2.2 as if this Lease had been renewed for a period of twelve (12) full calendar months after such expiration or earlier termination of the Term or such renewal); and
(c) such month-to-month tenancy shall be upon the same terms and subject to the same conditions as those set forth in the provisions of this Lease; provided, that if the Landlord gives the Tenant, by at least thirty (30) days before the end of any calendar month during such month-to-month tenancy,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document written notice that such terms and conditions (including any thereof relating to the amount or payment of Rent) shall, after such month, be modified in
______
/1// or any extension thereof
-2- any manner specified in such notice, then such tenancy shall, after such month, be upon the said terms and subject to the said conditions, as so modified.
1.4.2. If the Tenant continues to occupy the Premises after the expiration of the Term or any earlier termination of this Lease without obtaining the Landlord's express, written consent thereto, such occupancy shall be on the same terms and subject to the same conditions as those set forth in the provisions of paragraph 1.4.1, except that, anything contained in the provisions of this Lease to the contrary notwithstanding, (a) the rental payable during the period of such occupancy shall equal/2// of the rental which would be payable during such period under the provisions of subparagraph 1.4.1.(b), had the Tenant obtained the Landlord's express, written consent to such occupancy, as aforesaid, and (b) nothing in the provisions of paragraph 1.4.1. or any other provision of this Lease shall be deemed in any way to alter or impair the Landlord's right immediately to evict the Tenant or exercise its other rights and remedies under the provisions of this Lease or applicable law on account of the Tenant's occupancy of the Premises without having obtained such consent.
SECTION 2. RENT
2.1. AMOUNT. As rent for the Premises (all of which is hereinafter referred to collectively as "Rent"), the Tenant shall pay to the Landlord in advance, without demand, deduction or set off, for the entire Term hereof, all of the following:
2.1.1. Base Rent. An annual rent in the amounts specified in Exhibit D.
2. 1.2. Additional Rent. Additional rent (hereinafter referred to as "Additional Rent") in the amount of any payment referred to as such in any provision of this Lease which accrues while this Lease is in effect.
2. 1.3. Lease Year. As used in the provisions of this Lease, the term "Lease Year" means (a) the period commencing on the Commencement Date and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document terminating on the first (1st) anniversary of the last day of the calendar month containing the Commencement Date, and (b) each successive period of twelve ( 12) calendar months thereafter during the Term.
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/2// one hundred fifty percent (150%) for the first three (3) months and two hundred percent (200%) thereafter
-3-
2.2. ANNUAL OPERATING COSTS/3//
2.2.1. Taxes.
(a) Tenant agrees to pay before they become delinquent all taxes, assessments and governmental charges of any kind and nature whatsoever (hereinafter referred to as "Taxes") lawfully levied or assessed against the Building and the grounds, parking areas, driveways and alleys around the Building. Tenant shall furnish to Landlord, not later than twenty (20) days before the date any such Taxes become delinquent, official receipts of the appropriate taxing authority or other evidence satisfactory to Landlord evidencing payment thereof. If Tenant should fail to pay any Taxes, assessments or governmental charges required to be paid by Tenant hereunder, in addition to any other remedies provided herein, Landlord may, if it so elects, pay such Taxes, assessments and governmental charges. Any sums so paid by Landlord shall be deemed to be Additional Rent owing by Tenant to Landlord and due and payable on demand by Landlord, together with interest thereon at the rate of twelve percent (12%) per annum from the date paid by Landlord to the date of repayment by Tenant.
(b) In the event the Premises constitute a portion of a multiple occupancy building, in lieu of Tenant paying the Taxes as provided above, Landlord agrees to pay, before they become delinquent, all Taxes lawfully levied or assessed against such Building and the grounds, parking areas, driveways and alleys around the Building, and Tenant agrees to pay to Landlord, as Additional Rent, upon demand, the amount of Tenant's proportionate share of such Taxes paid by Landlord. Tenant's proportionate share means the percentage assigned to the Premises for purposes of allocating Taxes as set forth herein and other Annual Operating Costs as set forth in Subsection 2.2.2 below and represents the approximate and (for purposes of this Lease) hereby agreed upon proportion which the floor area of the Premises bears to the aggregate net rentable space within the Building and the Property and shall be twenty two and 40/100 percent (22.40 %) of the Building and twenty two and 40/00 percent (22.40 % ) of the Property.
2.2.2. Maintenance.
(a) Maintenance by Tenant. Tenant shall, at its own cost and expense, keep and maintain all parts of the Premises in good condition, promptly
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document making all necessary repairs and replacements, interior and non-structural, ordinary and extraordinary, including but not limited to, glass and plate glass, doors and office entry(s), walls and finish work, floors and floor covering, heating and air conditioning systems, electrical systems, plumbing work and fixtures, termite and pest extermination, regular removal of trash and debris. The cost of maintenance and repair of any common party wall (any wall, divider, partition or any other structure separating the premises from any adjacent premises occupied by other tenants) shall be shared equally by
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/3// In no event shall Tenant's annual increase in controllable Annual Operating Costs (not including, real estate taxes, insurance, utilities and snow removal) exceed six percent (6%) of the Tenant's previous years costs.
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Tenant and the tenant occupying adjacent premises. Tenant shall not damage any party wall or disturb the integrity and support provided by any party wall and shall, at its sole cost and expense, promptly repair any damage or injury to any party wall caused by Tenant or its employees, agents or invitees.
(b) Maintenance by Landlord. Tenant and its employees, customers and licensees shall have the non-exclusive right to use the parking areas, if any, as may be designated by Landlord in writing, subject to such reasonable rules and regulations as Landlord may from time to time prescribe. Further, in multiple occupancy buildings, Landlord shall perform the roof, paving, and landscape maintenance, exterior painting and common sewage line plumbing which are otherwise Tenant's obligations under Subsection 2.2.2(a) above, and Tenant shall, in lieu of the obligations set forth under Subsection 2.2.2(a) above with respect to such items, be liable for its proportionate share (as defined in Subsection 2.2.1(b) above) of the cost and expense of Building maintenance and the care for the grounds around the Building, including but not limited to, the mowing of grass, care of shrubs, general landscaping, maintenance of parking areas, driveways and alleys, roof maintenance, exterior repainting and common sewage line plumbing; provided, however, that Landlord shall have the right to require Tenant to pay such other reasonable proportion of said mowing, shrub care and general landscaping costs as may be determined by Landlord in its sole discretion; and further provided that if Tenant or any other particular tenant of the Building can be clearly identified as being responsible for obstruction or stoppage of the common sanitary sewage line then Tenant, if Tenant is responsible, or such other responsible tenant, shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall pay/4// when due its share, determined as aforesaid, of such costs and expenses along with the other tenants of the Building to Landlord upon demand, as Additional Rent, for the amount of its share of such costs and expenses in the event Landlord elects to perform or cause to be performed such work. Such share shall include a management fee equal to five percent (5%) of the Rent for each Lease Year, administrative and accounting costs, and a/5// reserve for asphalt, roof repairs and repainting.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) Maintenance Contract. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventative maintenance/service contract with a maintenance contractor for servicing all heating and air conditioning systems and equipment within the Premises and shall provide Landlord with copies of all service reports. The maintenance contractor and contract
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/4// within thirty (30) days
/5// reasonable
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must be approved by Landlord./6// The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective (and a copy thereof delivered to Landlord) within thirty (30) days of the date Tenant takes possession of the Premises. Each Lease year Landlord will inspect the HVAC system to determine that the aforementioned maintenance is being performed. If the HVAC system is not being maintained pursuant to this Section Landlord will send notice of such lack of maintenance to Tenant and Tenant shall thereafter have thirty (30) days to perform the necessary maintenance. Failure by Tenant to complete the necessary maintenance in such thirty (30) day period shall be a material Event of Default and Landlord shall have the right to cure such Event of Default pursuant to Section 13. Should the inspection demonstrate a lack of maintenance of the HVAC system, Tenant shall pay for the cost of such inspection. Thirty days before Tenant vacates the Premises, Landlord will have the HVAC equipment inspected by a qualified HVAC mechanic at Landlord's expense. If in the opinion of the HVAC mechanic, the equipment has not been properly maintained,/7// then Landlord may authorize necessary repairs to be made to the system. Such repairs will be deducted from the Tenant's security deposit. Tenant shall reimburse Landlord for any and all costs associated with such repairs which exceed the amount of any security deposit. The remainder of the security deposit, if any, shall be refunded to Tenant in accordance with the terms of the Lease.
2.2.3. Computation. After the end of each calendar year during the Term, the Landlord shall compute the total of the Annual Operating Costs incurred for all of the Property during such calendar year, and shall allocate them to the net rentable space within the Property in proportion to the respective operating costs percentages assigned to such spaces; provided, that anything contained in the foregoing provisions of this subsection 2.2 to the contrary notwithstanding, wherever the Tenant and/or any other tenant of space within the Property has agreed in its lease or otherwise to provide any item of such services partially or entirely at its own expense, or wherever in the Landlord's judgment any such significant item of expense is not incurred with respect to or for the benefit of all of the net rentable space within the Property, in allocating the Annual Operating Costs pursuant to the foregoing
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document provisions of this subsection the Landlord shall make an appropriate adjustment, using generally accepted accounting principles, as aforesaid, so as to avoid allocating to the Tenant or to such other tenant (as the case may be) those Annual Operating Costs covering such services already being provided by the Tenant or by such other tenant at its own expense, or to avoid allocating to all of the net rentable space within the Property those Annual Operating Costs incurred only with respect to a portion thereof, as aforesaid.
2.2.4. Payment as Additional Rent. The Tenant shall, within fifteen (15) days after demand therefor by the Landlord (with respect to each calendar year during the Term), accompanied by a statement setting forth in reasonable detail the Annual Operating Costs for
______
/6// , which approval shall not be unreasonably withheld, conditioned or delayed
/7// , reasonable wear and tear excepted
-6- such calendar year, pay to the Landlord as Additional Rent the amount of the Tenant's operating costs percentage of the Annual Operating Costs for such calendar year (as derived and allocated under the provisions of paragraph 2.2.3).
2.2.5. Proration. If only part of any calendar year falls within the Term, the amount computed as Additional Rent for such calendar year under the foregoing provisions of this subsection shall be prorated in proportion to the portion of such calendar year falling within the Term (but the expiration of the Term before the end of a calendar year shall not impair the Tenant's obligation hereunder to pay such prorated portion of such Additional Rent for that portion of such calendar year falling within the Term, which shall be paid on demand, as aforesaid).
2.2.6. Landlord's right to estimate. Anything contained in the foregoing provisions of this subsection to the contrary notwithstanding, the Landlord may, at its discretion, (a) make from time to time during the Term a reasonable estimate of the Additional Rent which may become due under such provisions for any calendar year, (b) require the Tenant to pay to the Landlord for each calendar month during such year one twelfth (1/12) of such Additional Rent, at the time and in the manner that the Tenant is required hereunder to pay the monthly installment of the Base Rent for such month, and (c) at the Landlord's reasonable discretion, increase or decrease from time to time during such calendar year the amount initially so estimated for such calendar year, all by giving the Tenant written notice thereof, accompanied by a schedule setting forth in reasonable detail the expenses comprising the Annual Operating Costs, as so estimated. In such event, the Landlord shall cause the actual amount of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document such Additional Rent to be computed and certified to the Tenant within 120 days after the end of such calendar year, and the Tenant or the Landlord, as the case may be, shall promptly thereafter pay to the other the amount of any deficiency or overpayment therein, as the case may be./8//
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/8// Right to Audit:
(a) Selection of Accountants: If Tenant disputes the amount of an adjustment or the proposed estimated increase or decrease in Taxes or Annual Operating Costs, Tenant shall give Landlord written notice of such dispute within thirty (30) days after Landlord advises Tenant of such adjustment or proposed increase or decrease. Tenant's failure to give such notice shall waive its right to dispute the amounts so determined. Tenant shall also not be entitled to dispute the foregoing amounts if Tenant is then in default hereunder. If Tenant is entitled to and timely objects, Tenant shall have the right to engage its own accountants ("Tenants Accountants") for the purposes of verifying the accuracy of the statement in dispute, or the reasonableness of the adjustment or estimated increase or decrease. If Tenant's Accountants determine that an error has been made, Landlord and Tenant's Accountants shall endeavor to agree upon the matter. If they cannot agree within twenty (20) days from the date Tenant's Accountants commence reviewing Landlord's records, Landlord and Tenant's Accountants shall jointly
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2.3. WHEN DUE AND PAYABLE.
2.3.1. The Base Rent for any Lease Year shall be due and payable in twelve (12) consecutive, equal monthly installments, in advance, on the first (lst) day of each calendar month during such Lease Year; provided, that the first monthly installment of the Base Rent will be due and payable upon lease execution.
2.3.2. Any Additional Rent, other than Annual Operating Costs which are due and payable with each payment of Base Rent, accruing to the Landlord under any provision
______
select an independent certified public accounting firm (the "Independent Accountant") which firm shall conclusively determine whether the adjustment or estimated increase or decreases is reasonable, and if not, what amount is reasonable. Both parties shall be bound by such determination. If Tenant's Accountants do not participate in choosing the Independent Accountant within 20 days from the date Landlord and Tenant's Accountant's determine that they
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document cannot agree as to whether or not an error has been made, then Landlord's determination of the adjustment or estimated increase or decrease shall be conclusively determined to be reasonable and Tenant shall be bound hereby.
(b) Payment of Costs: All costs incurred by Tenant in obtaining Tenant's Accountants and the cost of the Independent Accountant shall be paid by Tenant unless Tenant's Accountants disclose an error, acknowledge by Landlord (or found to have conclusively occurred by the Independent Accountant), of more than ten percent (10%) in the computation of the total amount of Taxes or Annual Operating Costs as set forth in the statement submitted by Landlord with respect to the matter in dispute; in which event Landlord shall pay the reasonable costs incurred by Tenant in obtaining such audits. No subtenant shall have the right to conduct an audit and no assignee shall conduct an audit for any period during which such assignee was not in possession of the Premises.
(c) Continuation of Payments Pending Determination: Tenant shall continue to timely pay Landlord the amount of the prior year's adjustment and adjusted Additional Rent determined to be incorrect as aforesaid until the parties have concurred as to the appropriate adjustment or have deemed to be bound by the determination of the Independent Accountant in accordance with the preceding terms. Landlord's delay in submitting any statement contemplated herein for any Lease Year shall not affect the provisions of this Paragraph, nor constitute a waiver of Landlord's rights as set forth herein for said Lease Year or any subsequent Lease Years during the Lease Term or any extensions thereof.
-8-
of this Lease shall, except as is otherwise set forth herein, be due and/9//
2.3.3. Each such payment shall be made promptly when due, without any deduction or setoff whatsoever, and without demand, failing which the Tenant shall pay to the Landlord as Additional Rent, a late charge equaling/10// of the sum of the Base Rent and Additional Rent outstanding.
2.4. WHERE PAYABLE. The Tenant shall pay the Rent, in lawful currency of the United States of America, to the Landlord by delivering or mailing it (postage prepaid) to the Landlord's address which is set forth in Section 16, or to such other address or in such other manner as the Landlord from time to time specifies by written notice to the Tenant. Any payment made by the Tenant to the Landlord on account of Rent may be credited by the Landlord to the payment of any Rent then past due, including late fees, interest and penalties, before being credited to Rent currently falling due. Any such payment which is less than the amount of Rent then due shall constitute a payment made on account
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document thereof, the parties hereto hereby agreeing that the Landlord's acceptance of such payment (whether or not with or accompanied by an endorsement or statement that such lesser amount or the Landlord's acceptance thereof constitutes payment in full of the amount of Rent then due) shall not alter or impair the Landlord's rights hereunder to be paid all of such amount then due, or in any other respect.
2.5. TAX ON LEASE. If federal, state or local law now or hereafter imposes any tax, assessment, levy or other charge (other than any income, inheritance or estate tax) directly or indirectly upon (a) the Landlord with respect to this Lease or the value thereof, (b) the Tenant's use or occupancy of the Premises, (c) the Base Rent, Additional Rent or any other sum payable under this Lease, or (d) this transaction, then (except if and to the extent that such tax, assessment, levy or other charge is included in the Annual Operating Costs) the Tenant shall pay the amount thereof as Additional Rent to the Landlord upon demand, unless the Tenant is prohibited by law from doing so, in which event the Landlord may, at its election, terminate this Lease by giving written notice thereof to the Tenant.
2.6. SECURITY DEPOSIT.
2.6.1. Simultaneously with the entry into this Lease by the parties hereto, the Tenant shall deposit with the Landlord the sum of twenty-six thousand two hundred nineteen and 50/100 Dollars ($26,219.50), which shall be retained by the Landlord as security for the Tenant's payment of the Rent and performance of all of its other obligations under the provisions of this
______
/9// within thirty (30) days after Tenant's receipt of invoice.
/10// twelve percent (12%)
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Lease./11//
2.6.2. On the occurrence of an Event of Default, the Landlord shall be entitled, at its sole discretion,
(a) to apply any or all of such sum in payment of (i) any Rent then due and unpaid, (ii) any expense incurred by the Landlord in curing any such event of default, and/or (iii) any damages incurred by the Landlord by reason of such event of default (including, by way of example rather than of limitation, that of reasonable attorneys' fees); and/or
(b) to retain any or all of such sum to reimburse for any or all damages suffered by the Landlord by reason of event of such default. If at any time Landlord draws upon the security deposit in accordance with this
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document section Tenant upon demand agrees to immediately pay to Landlord an amount sufficient to return the security deposit to the amount stated above.
2.6.3. On the termination of this Lease, any of such sum which is not so applied or retained shall be returned to the Tenant within/12// of the Lease termination date.
2.6.4. Such sum shall not bear interest while being held by the Landlord hereunder.
2.6.5. No Mortgagee (as that term is defined by the provisions of Section 12) or purchaser of any or all of the Property at any foreclosure proceeding brought under the provisions of any Mortgage (as that term is defined by the provisions of Section 12) shall (regardless of whether the Lease is at the time in question subordinate to the lien of any Mortgage under the provisions of Section 12 or otherwise) be liable to the Tenant or any other person for any or all of such sum (or any other or additional security deposit or other payment made by the Tenant under the provisions of this Lease), unless both (a) the Landlord has actually delivered it in cash to such Mortgagee or purchaser, as the case may be, and (b) it has been specifically identified, and accepted by the Lender or such purchaser, as the case may be, as such and for such purpose, then Landlord will have no further liability for return of the security deposit.
SECTION 3. USE OF PREMISES.
3.1 The Tenant shall, continuously throughout the Term occupy and use the Premises for and only for general office and warehouse purposes.
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/11// Notwithstanding anything contained herein to the contrary provided Tenant hasn't been in default, Landlord will refund one month of the security deposit in the amount of eight thousand seven hundred thirty-nine and 83/100 ($8,739.83) at the end of the first (1st) Lease Year.
/12// thirty (30) days
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3.2 In its use of the Premises and the remainder of the Property, the Tenant shall not violate any applicable law, ordinance or regulation.
3.3 License.
3.3.1 The Landlord hereby grants to the Tenant a non-exclusive license to use (and to permit its officers, directors, agents, employees and invitees to use in the course of conducting business at the Premises),
(a) any and all portions of the said tract of land on which the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Building is located (excluding that portion thereof which is improved by any other building) which, by their nature, are manifestly designed and intended for common use by the occupants of the Building and of any other improvements on such tract, for pedestrian ingress and egress to and from the Premises and for any other such manifest purposes; and
(b) any and all portions of such tract of land as from time to time are designated (by striping or otherwise) by the Landlord for such purpose, for the parking of automobiles.
3.3.2. Such license shall be exercised in common with the exercise thereof by the Landlord, any tenant or owner of the building or any other building located on such tract, and their respective officers, directors, agents, employees and invitees, and in accordance with the Rules and Regulations promulgated from time to time pursuant to the provisions of Section 11.
3.4 SIGNS. The Tenant shall have the right to erect from time to time within the Premises such signs as it desires, in accordance with applicable law, except that the Tenant shall not erect any sign within the Premises in any place where such sign is visible from the exterior of the Premises, unless the Landlord has given its express, written consent thereto.
3.5 [DELETED]
SECTION 4. INSURANCE AND INDEMNIFICATION.
4.1 INCREASE IN RISK. The Tenant
4.1.1. shall not do or permit to be done any act or thing as a result of which either (a) any policy of insurance of any kind covering (i) any or all of the Property or (ii) any liability of the Landlord in connection therewith may become void or suspended, or (b) the insurance risk under any such policy would (in the opinion of the insurer thereunder) be made greater; and
4.1.2. shall pay as Additional Rent the amount of any increase in any premium for such insurance resulting from any breach of such covenant.
4.2 INSURANCE TO BE MAINTAINED BY TENANT.
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4.2.1. The Tenant shall maintain at its expense, throughout the Term, insurance against loss or liability in connection with bodily injury, death, property damage or destruction, occurring within the Premises or arising out of the use thereof by the Tenant or its agents, employees, officers or invitees, visitors and guests, under one or more policies of general public liability insurance having such limits as to each as are reasonably required by the Landlord from time to time, but in any event of not less than a total of Two Million Dollars ($2,000,000.00) for bodily injury to or death of all persons or property damage or destruction in any one occurrence, and (b) Fifty Thousand
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Dollars ($50,000.00) Fire Legal Liability. Each such policy shall (a) name as the insured thereunder the Tenant and the Landlord (and, at the Landlord's request, any Mortgagee) as additional insureds, (b) by its terms, not be cancellable without at least thirty (30) days' prior written notice to the Landlord (and, at the Landlord's request, any such Mortgagee), and (c) be issued by any insurer of recognized responsibility licensed to issue such policy in the State of Maryland.
4.2.2. (a) At least five (5) days before the Commencement Date, the Tenant shall deliver to the Landlord a certificate of each such policy, and (b) at least thirty (30) days before any such policy expires, the Tenant shall deliver to the Landlord an original or a signed duplicate copy of a replacement policy therefor; provided, that so long as such insurance is otherwise in accordance with the provisions of this Section, the Tenant may carry any such insurance under a blanket policy covering the Premises for the risks and in the minimum amounts specified in paragraph 4.2.1, in which event the Tenant shall deliver to the Landlord two (2) insurer's certificates therefor in lieu of an original or a copy thereof, as aforesaid.
4.3 INSURANCE TO BE MAINTAINED BY LANDLORD. The Landlord shall maintain throughout the Term all-risk insurance upon the Building, including as needed but not limited to Personal Property, Loss of Rents, Glass, Boiler and Machinery, General Liability and Umbrella Liability in at least such amounts and having at least such forms of coverage as are required from time to time by the Landlord's lender. The cost of the premiums for such insurance and of each endorsement thereto and of any applicable deductibles therefor shall be deemed, for purposes of the provisions of Section 2, to be a cost of operating and maintaining the Property.
4.4 WAIVER OF SUBROGATION. If either party hereto is paid any proceeds under any policy of insurance naming such party as an insured, on account of any loss, damage or liability, then such party hereby releases the other patty hereto, to and only to the extent of the amount of such proceeds, from any and all liability for such loss, damage or liability, notwithstanding that such loss, damage or liability may arise out of the negligent or intentionally tortious act or omission of the other party, its agents or employees; provided, that such release shall be effective only as to a loss, damage or liability occurring while the appropriate policy of insurance of the releasing party provides that such release shall not impair the effectiveness of such policy or the insured's ability to recover thereunder. Each party hereto shall use reasonable efforts to have a clause to such effect included in its said policies, and shall promptly notify the other in writing if such clause cannot be included in any such policy.
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4.5 LIABILITY OF PARTIES. Except if and to the extent that such party is released from liability to the other party hereto pursuant to the provision of subsection 4.4.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4.5.1. the Landlord (a) shall be responsible for, and shall indemnify and hold harmless the Tenant against and from any and all liability arising out of, any injury to or death of any person or damage to any property, occurring anywhere upon the Property, if, only if and to the extent that such injury, death or damage is proximately caused by the grossly negligent or intentionally tortious act or omission of the Landlord or its agents, officers or employees, but (b) shall not be responsible for or be obligated to indemnify or hold harmless the Tenant against or from any liability for any such injury, death or damage occurring anywhere upon the Property (including the Premises), (i) by reason of the Tenant's occupancy or use of the Premises or any other portion of the Property, or (ii) because of fire, windstorm, act of God or other cause unless solely caused by such gross negligence or intentionally tortious act or omission of the Landlord, as aforesaid; and
4.5.2. subject to the operation and effect of the foregoing provisions of this subsection, the Tenant shall be responsible for, and shall defend, indemnify and hold harmless the Landlord against and from, any and all liability or claim of liability (including without limitation reasonable attorney's fees) arising out of any injury to or death of any person or damage to any property, occurring within the Premises, or, if caused by Tenant, its employees, agents or invitees, on the Property.
SECTION 5. IMPROVEMENTS TO PREMISES.
5.1 BY LANDLORD./13//
5.1.1. The Landlord/14// shall make the improvements to the Premises which are set forth in the plans and specifications attached hereto as Exhibit B-1.
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/13// Landlord shall provide a turn key buildout based upon the final approved space plan dated July 24,1998 and attached hereto in Exhibit B-1. The cost of any additional improvements or services incurred due to Tenant's modification of the final approved space plan shall be promptly paid directly by Tenant to Landlord upon written request by Landlord (to include invoice with back-up), and failure to pay such sum in accordance with the schedule below shall constitute an Event of Default under the Lease. Landlord's contractor shall perform all work to be done within the Premises, with the exception of Tenant's telephone and data cabling.
In the event the cost of the improvement exceeds the Allowance, Tenant shall repay such costs in accordance with the following schedule; (a) seventy five percent (75%) upon requisition of the improvements and (b) twenty five percent (25%) upon the substantial completion of the improvements.
/14// at its sole cost and expense
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 5.1.2. [Deleted]
5.1.3. the Landlord shall use reasonable efforts to complete such improvements by the date on which the Tenant is entitled to occupy the Premises pursuant to this Lease, but shall have no liability to the Tenant hereunder if prevented from doing so by reason of any (a) strike, lock-out or other labor troubles, (b) governmental restrictions or limitations, (c) failure or shortage of electrical power, gas, water, fuel oil, or other utility or service, (d) riot, war, insurrection or other national or local emergency (e) accident, flood, fire or other casualty, (f) adverse weather condition, (g) other act of God, (h) inability to obtain a certificate of occupancy, or (i) shortage of materials or labor, or (j) other cause similar or dissimilar to any of the foregoing and beyond the Landlord's reasonable control. In such event, (a) the Commencement Date shall be postponed for a period equalling the length of such delay, (b) the Termination Date shall be determined pursuant to the provisions of subsection 1.1 by reference to the Commencement Date as so postponed, and (c) the Tenant shall accept possession of the Premises within three (3) days after such completion. If Tenant does not submit drawings or approvals in a timely manner and, as a result, the Landlord cannot deliver the Premises timely, the Lease Commencement Date shall not be postponed.
5.2 BY TENANT. The Tenant shall not make any alteration, addition or improvement to the Premises without first obtaining the Landlord's written consent thereto.
If the Landlord consents to any such proposed alteration, addition or improvement, it shall be made at the Tenant's sole expense (and the Tenant shall hold the Landlord harmless from any cost incurred on account thereof), and at such time and in such manner as not unreasonably to interfere with the use and enjoyment of the remainder of the Property by any tenant thereof or other person.
5.3 MECHANICS' LIEN. The Tenant shall (a) immediately after it is filed or claimed, bond or have released any mechanics', materialman's or other lien filed or claimed against any or all of the Premises, the Property, or any other property owned or leased by the Landlord, by reason of labor or materials provided for the Tenant or any of its contractors or subcontractors (other than labor or materials provided by the Landlord pursuant to the provisions of subsection 5.1), or otherwise arising out of the Tenant's use or occupancy of the Premises or any other portion of the Property, and (b) defend, indemnify and hold harmless the Landlord against and from any and all liability, claim of liability or expense (including, by way of example rather than of limitation, that of reasonable attorneys' fees) incurred by the Landlord on account of any such lien or claim.
5.4 FIXTURES. Any and all improvements, repairs, alterations and all other property attached to, used in connection with or otherwise installed within the Premises by the Landlord or the Tenant shall, immediately on the completion of their installation, become the Landlord's property without payment therefor by the Landlord, except that any machinery, equipment or fixtures installed by the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Tenant and used in the conduct of the Tenant's trade or business (rather than to service the Premises or any of the remainder of the Building or the Property generally)
-14- shall remain the Tenant's property.
SECTION 6. UTILITIES AND SERVICES.
6.1 UTILITIES. Landlord agrees to provide at its cost water and electricity service connections into the Premises and telephone service connections to the Building, but Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges, meter installation charges, and other utilities and services used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto and any maintenance charges for utilities and shall furnish all electric light bulbs and tubes. If any such services are not separately metered to Tenant, Tenant shall pay its proportionate share as determined by Landlord of all charges jointly metered within the Building.
6.2 INTERRUPTION. The Landlord shall have no liability to the Tenant for any compensation or reduction of rent on account of any failure, modification or interruption of any such service which either (a) arises out of any of the causes enumerated in the provisions of subsection 5.1.3, or (b) is required by applicable law (including, by way of example rather than of limitation, any federal law or regulation relating to the furnishing or consumption of energy or the temperature of buildings).
SECTION 7. LANDLORD'S RIGHT OF ENTRY.
The Landlord and its agents shall be entitled to enter the Premises at any reasonable time (a) to inspect the Premises, (b) to exhibit the Premises to any existing or prospective purchaser, tenant/15// or Mortgagee thereof, (c) to make any alteration, improvement or repair to the Building or the Premises, or (d) for any other purpose relating to the operation or maintenance of the Property; provided that the Landlord shall (a) (unless doing so is impractical or unreasonable because of emergency) give the Tenant at least twenty-four (24) hours' prior notice of its intention to enter the Premises, and (b) use reasonable efforts to avoid thereby interfering more than is reasonably necessary with the Tenant's use and enjoyment thereof.
SECTION 8. FIRE AND OTHER CASUALTIES.
8.1 GENERAL. If the Premises are damaged by fire or other casualty during the term,
8.1.1. the Landlord shall, with reasonable promptness (taking into account the time required by the Landlord to effect a settlement with, and to procure any insurance proceeds from, any insurer against such casualty, but in
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document any event within/16// days after the date of such casualty), substantially restore the premises to their condition immediately before such casualty,
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/15// (if during the last six (6) months of the Term)
/16// one hundred eighty (180)
-15- and may temporarily enter and possess any or all of the Premises for such purpose (provided, that the Landlord shall not be obligated to repair, restore or replace any fixture, improvement, alteration, furniture, or other property owned, installed or made by the Tenant), but
8.1.2. the times for commencement and completion of any such restoration shall be extended for the period of any delay occasioned by the Landlord in doing so arising out of any of the causes enumerated in the provisions of subsection 5.1. If the Landlord undertakes to restore the Premises and such restoration is not accomplished within the said period of/17// days plus the period of any extension thereof, as aforesaid, the Tenant may terminate this Lease by giving written notice thereof to the Landlord within thirty (30) days after the expiration of such period, as so extended; and
8.1.3. so long as the Tenant is deprived of the use of any or all of the Premises on account of such casualty, the Base Rent and any Additional Rent payable under the provisions of subsection 2.2 shall be abated in proportion to the number of square feet of the Premises rendered substantially unfit for occupancy by such casualty, unless, because of any such damage, the undamaged portion of the Premises is made materially unsuitable for use by the Tenant for the purposes set forth in the provisions of Section 3, in which event the Base Rent and any such Additional Rent shall be abated entirely during such period of deprivation.
8.2 SUBSTANTIAL DESTRUCTION. Anything contained in the foregoing provisions of this Section to the contrary notwithstanding,
8.2.1. if during the Term the Building is so damaged by fire or other casualty that (a) either the Premises or (whether or not the Premises are damaged) the Building is rendered substantially unfit for occupancy, as reasonably determined by the Landlord, or (b) the Building is damaged to the extent that the Landlord reasonably elects to demolish the Building, or if any Mortgagee requires that any or all of such insurance proceeds be used to retire any or all of the debt secured by its Mortgage, then in any such case the Landlord may elect to terminate this Lease, as of the date of such casualty by giving written notice thereof to the Tenant within thirty (30) days after the date of such casualty; and
8.2.2. in such event, (a) the Tenant shall pay to the Landlord the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Base Rent and any Additional Rent payable by the Tenant hereunder and accrued through the date of such termination, (b) the Landlord shall repay to the Tenant any and all prepaid Rent for periods beyond such termination, and (c) the Landlord may enter upon and repossess the Premises without further notice.
8.3 TENANT'S NEGLIGENCE. Anything contained in any provision of this Lease to the contrary notwithstanding, if any such damage to the Premises, the Building or both are caused by or result from the negligent or intentionally tortious act or omission of the Tenant, those claiming
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/17// one hundred eighty (180)
-16- under the Tenant or any of their respective officers, employees, agents or invitees,
8.3.1. the Rent shall not be suspended or apportioned as aforesaid, and
8.3.2. except if and to the extent that the Tenant is released from liability therefor pursuant to the provisions of subsection 4.4, the Tenant shall pay to the Landlord upon demand, as Additional Rent, the cost of (a) any repairs and restoration made or to be made as a result of such damage, or (b) (if the Landlord elects not to restore the Building) any damage or loss which the Landlord incurs as a result of such damage.
SECTION 9. CONDEMNATION.
9.1 RIGHT TO AWARD.
9.1.1. If any or all of the Premises are taken by the exercise of any power of eminent domain or are conveyed to or at the direction of any governmental entity under a threat of any such taking (each of which is hereinafter referred to as a "Condemnation"), the Landlord shall be entitled to collect from the condemning authority thereunder the entire amount of any award made in any such proceeding or as consideration for such conveyance, without deduction therefrom for any leasehold or other estate held by the Tenant under this Lease.
9.1.2. The Tenant hereby (a) assigns to the Landlord all of the Tenant's right, title and interest, if any, in and to any such award; (b) waives any right which it may otherwise have in connection with such Condemnation, against the Landlord or such condemning authority, to any payment for (i) the value of the then-unexpired portion of the Term, (ii) leasehold damages, and (iii) any damage to or diminution of the value of the Tenant's leasehold interest hereunder or any portion of the Premises not covered by such Condemnation; and (c) agrees to execute any and all further documents which may
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document be required to facilitate the Landlord's collection of any and all such awards.
9.1.3. Subject to the operation and effect of the foregoing provisions of this Section, the Tenant may seek, in a separate proceeding, a separate award on account of any damages or costs incurred by the Tenant as a result of such Condemnation, so long as such separate award in no way diminishes any award or payment which the Landlord would otherwise receive as a result of such Condemnation and Tenants right of recovery is limited to moving expenses and the cost of trade fixtures.
9.2 EFFECT OF CONDEMNATION.
9.2.1. If (a) all of the Premises are covered by a Condemnation, or (b) any part of the Premises is covered by a Condemnation and the remainder thereof is insufficient for the reasonable operation therein of the Tenant's business, or (c) any of the Building is covered by a Condemnation and, in the Landlord's reasonable opinion, it would be impractical to restore the
-17- remainder thereof, or (d) any of the rest of the Property is covered by a Condemnation and, in the Landlord's reasonable opinion, it would be impractical to continue to operate the remainder of the Property thereafter, then, in any such event, the Term shall terminate on the date on which possession of so much of the Premises, the Building or the rest of the Property, as the case may be, as is covered by such Condemnation is taken by the condemning authority thereunder, and all Rent (including, by way of example rather than of limitation, any Additional Rent payable under the provision of subsection 2.2), taxes and other charges payable hereunder shall be apportioned and paid to such date.
9.2.2. If there is a Condemnation and the Term does not terminate pursuant to the foregoing provision of this subsection, the operation and effect of this Lease shall be unaffected by such Condemnation, except that the Base Rent shall be reduced in proportion to the square footage of floor area, if any, of the Premises covered by such Condemnation.
9.3 If there is a Condemnation, the Landlord shall have no liability to the Tenant on account of any (a) interruption of the Tenant's business upon the Premises, (b) diminution in the Tenant's ability to use the Premises, or (c) other injury or damage sustained by the Tenant as a result of such Condemnation.
9.4 Except for any separate proceeding brought by the Tenant under the provisions of paragraph 9.1.3., the Landlord shall be entitled to conduct any such condemnation proceeding and any settlement thereof free of interference from the Tenant, and the Tenant hereby waives any right which it otherwise has to participate therein.
SECTION 10. ASSIGNMENT AND SUBLETTING.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.1 The Tenant hereby acknowledges that the Landlord has entered into this Lease because of the Tenant's financial strength, goodwill, ability and expertise and that, accordingly, this Lease is one which is personal to the Tenant, and agrees for itself and its successors and assigns in interest hereunder that it will not (a) assign any of its rights under this Lease, or (b) make or permit any total or partial sale, lease, sublease, assignment, conveyance, license, mortgage, pledge, encumbrance, or a transfer of a controlling interest in Tenant, or other transfer of any or all of the Premises or the occupancy or use thereof (each of which is hereinafter referred to as a "Transfer"), without first obtaining the Landlord's written consent thereto (which consent/18// and, if given, shall not constitute a consent to any subsequent such Transfer, whether
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/18// shall not be unreasonably withheld, conditioned or delayed, so long as such transferee meets Landlord's reasonable criteria, which criteria are as follows:
a. The financial strength of the proposed assignee or subtenant, both in terms of net worth and in terms of reasonably anticipated cash flow over the Lease term, is not materially less than Tenant's financial strength at the time this Lease was signed or at the time of such assignment or sublease, whichever is greater.
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by the person hereinabove named as the "Tenant" or by any such transferee). The Landlord shall be entitled, at its sole discretion, to condition any such consent upon the entry by such person into an agreement with (and in form and substance satisfactory to) the Landlord, by which it assumes all of the Tenant's obligations hereunder. Any person to whom any Transfer is attempted without such consent shall have no claim, right or remedy whatsoever hereunder against the Landlord, and the Landlord shall have no duty to recognize any person claiming under or through the same. No such action taken with or without the Landlord's consent shall in any way relieve or release the Tenant from liability for the timely performance of all of the Tenant's obligations hereunder. The Tenant hereby acknowledges that any merger, consolidation or other restructuring of ownership interests in Tenant constitutes a Transfer hereunder. As additional rent, Tenant shall reimburse Landlord promptly for reasonable legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting; no assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee); no consent to any of the foregoing in a specific instance shall operate as a waiver in any subsequent instance. In the event that any assignee or subtenant pays to Tenant any amounts in excess of the Annual Rent and additional rent then payable hereunder, or pro rata portion thereof on a square footage basis for any portion of the Premises, Tenant shall
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document promptly pay/19// said excess to Landlord as and when received by Tenant.
10.2 Anything contained in the foregoing provisions of this Section to the contrary
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b. The proposed assignee or subtenant will not burden the Premises and/or Common Areas to an extent substantially disproportionate to typical tenants of the Building, whether through disproportionate demand for landlord services or utilities, disproportionate bearing weights on floor areas, disproportionate parking requirements, deterioration of floors or other elements of the Building, or otherwise.
c. The proposed assignee or subtenant does not intend to make substantial alterations to the Premises which would, in Landlord's reasonable judgement, result in a material net decrease in the value of the Premises as improved.
d. The proposed assignee's or subtenant's use of the Premises will, in Landlord's sole judgment, be compatible with the uses of the other tenants in the Building or will be appropriate for a Class A office building.
e. Any other basis on which Landlord can reasonably refuse to withhold its consent to the proposed assignment or sublease, including any failure of the proposed assignee or subtenant to meet any of the reasonable criteria of Landlord that Tenant was required to meet prior to the execution of this Lease.
/19// fifty percent (50%) of
-19- notwithstanding, neither the Tenant nor any other person having an interest in the possession, use or occupancy of the Premises or any other portion of the Property shall enter into any lease, sublease, license, concession or other agreement for the possession, use or occupancy of space in the Premises or any other portion of the Property which provides for any rental or other payment for such use, occupancy or utilization based in whole or in part upon the net income or profits derived by any person from the space in the Premises or other portion of the Property so leased, used or occupied (other than any amount based on a fixed percentages of receipts or sales).
10.3. /20//In the event of any/21// transfer without Landlord's consent, Landlord may, at its sole option, have the right at any time or from time to time or from time after such Transfer to terminate this Lease as to all or any portion of the Premises and enter into a direct lease agreement with the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document proposed sublessee. Neither Tenant nor any party claiming an interest under or through Tenant shall interfere with Landlord's exercise of its rights hereunder. Tenant hereby indemnifies and holds Landlord harmless from and against any and all liabilities, costs, losses or damages, including reasonable attorneys fees and court costs, arising from any breach of the provisions of this section by Tenant.
SECTION 11. RULES AND REGULATIONS.
The Landlord shall have the right to prescribe, at its sole discretion, reasonable rules and regulations (hereinafter referred to as the "Rules and Regulations") having uniform applicability to all tenants of the Building (subject to the provisions of their respective leases) and governing their use and enjoyment of the Building and the remainder of the Property; provided, that the Rules and Regulations shall not materially interfere with the Tenant's use and enjoyment of the Premises, in accordance with the provisions of this Lease, for the purposes enumerated in the provisions of Section 3. The Tenant shall adhere to the Rules and Regulations and shall cause its agents, employees, invitees, visitors and guests to do so. A copy of the Rules and Regulations in effect on the date hereof is attached hereto as Exhibit C.
SECTION 12. SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE.
12.1. SUBORDINATION. This Lease shall be subject and subordinate to the lien, operation and effect of each mortgage, deed of trust, ground lease and/or other, similar instrument of encumbrance heretofore or hereafter covering any or all of the Premises or the remainder of the Property (and each renewal, modification, consolidation, replacement or extension thereof), (each of which is herein referred to as a "Mortgage"), all automatically and without the necessity of any action by either party hereto.
12.2. ATTORNMENT AND NON-DISTURBANCE. The Tenant shall, promptly at the request of the
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/20// Except for the Transfers to subsidiaries or other affiliates of Tenant,
/21// other
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Landlord or the holder of any Mortgage (herein referred to as a "Mortgagee"), execute, enseal, acknowledge and deliver such further instrument or instruments
12.2.1. evidencing such subordination as the Landlord or such Mortgagee deems necessary or desirable, and
12.2.2. (at such Mortgagee's request) attorning to such Mortgagee.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Landlord will use reasonable efforts to obtain an agreement from the Mortgagee (in such Mortgagee's usual form) that such Mortgagee will, in the event of a foreclosure of any such mortgage or deed of trust (or termination of any such ground lease) take no action to interfere with the Tenant's rights hereunder, except on the occurrence of an Event of Default.
12.3. Anything contained in the provisions of this Section to the contrary notwithstanding, any Mortgagee may at any time subordinate the lien of its Mortgage to the operation and effect of this Lease without obtaining the Tenant's consent thereto, by giving the Tenant written notice thereof, in which event this Lease shall be deemed to be senior to such Mortgage without regard to their respective dates of execution, delivery and/or recordation among the Land Records of the said County, and thereafter such Mortgagee shall have the same rights as to this Lease as it would have had, were this Lease executed and delivered before the execution of such Mortgage.
SECTION 13. DEFAULT.
13.1. DEFINITION: As used in the provisions of this Lease, each of the following events shall constitute, and is hereinafter referred to as, an "Event of Default":
13.1.1. If the Tenant fails to (a) pay any Rent or any other sum which it is obligated to pay by any provision of this Lease, when and as due and payable hereunder and without demand therefor, or (b) perform any of its other obligations under the provisions of this Lease; or
13.1.2. if the Tenant (a) applies for or consents to the appointment of a receiver, trustee or liquidator of the Tenant or of all or a substantial part of its assets, (b) files a voluntary petition in bankruptcy or admits in writing its inability to pay its debts as they come due, (c) makes an assignment for the benefit of its creditors, (d) files a petition or an answer seeking a reorganization or an arrangement with creditors, or seeks to take advantage of any insolvency law, (e) performs any other act of bankruptcy, or (f) files an answer admitting the material allegations of a petition filed against the Tenant in any bankruptcy, reorganization or insolvency proceeding; or
13.1.3. if (a) an order, judgment or decree is entered by any court of competent jurisdiction adjudicating the Tenant a bankrupt or insolvent, approving a petition seeking such a reorganization, or appointing a receiver, trustee or liquidator of the Tenant or of all or a substantial part of its assets, or (b) there otherwise commences as to the Tenant or any of its assets any proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment, receivership or similar law, and if such order, judgment, decree or proceeding continues unstayed for more than sixty (60) consecutive days;
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Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 13.1.4. if the Tenant fails to occupy and assume possession of the Premises within/22// days after the Commencement Date;
13.1.5. [deleted]
13.1.6./23// [deleted]
13.2. NOTICE TO TENANT; GRACE PERIOD. Anything contained in the provisions of this Section to the contrary notwithstanding, on the occurrence of an Event of Default the Landlord shall not exercise any right or remedy which it holds under any provision of this Lease or applicable law unless and until
13.2.1. the Landlord has given written notice thereof to the Tenant, if written notice is required by this Section for the Event of Default which has occurred, and
13.2.2. the Tenant has failed, (a) if such Event of Default consists of a failure to pay money, within five (5) days/24//, or (b) if such Event of Default consists of something other than a failure to pay money, within thirty (30) days thereafter actively, diligently and in good faith to begin to cure such Event of Default and to continue thereafter to do so until it is fully cured; provided, that
13.2.3. no such notice shall be required, and the Tenant shall be entitled to no such grace period, (a) in an emergency situation in which the Landlord acts to cure such Event of Default pursuant to the provisions of paragraph 13.3.5; or (b) more than twice during any twelve (12) month period, or (c) if the Tenant has substantially terminated or is in the process of substantially terminating its continuous occupancy and use of the Premises for the purpose set forth in the provisions of Section 3, or (d) in the case of any Event of Default enumerated in the provisions of paragraphs 13.1.2, 13.1.3, 13.1.4 and 13.1.6.
13.3. LANDLORD'S RIGHTS ON EVENT OF DEFAULT. On the occurrence of any Event of Default, the Landlord may (subject to the operation and effect of the provisions of subsection 13.2) take any
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/22// thirty (30)
/23// In the event Tenant should cease to continue to operate its business at the Premises for a period of forty-five (45) consecutive days for any reason other than Tenant's alterations, casualty or other reason beyond Tenant's reasonable control, Landlord shall have the right at any time thereafter to terminate the Lease and recapture the Premises upon thirty (30) days prior written notice to Tenant. Landlord shall also have the option to recapture the Premises upon thirty (30) days prior written notice to Tenant without terminating the Lease. In such event, Tenant shall remain liable for the Rent until such time as Landlord leases the Premises to another party.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document /24// after written notice is received; however, Landlord shall only be obligated to provide written notice to Tenant twice in each Lease Year; thereafter, no notice shall be due from Landlord to Tenant and Tenant shall be in default if it fails to pay such amounts when due.
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or all of the following actions:
13.3.1. re-enter and repossess the Premises and any and all improvements thereon and additions thereto;
13.3.2. declare the entire balance of the Rent for the remainder of the Term to be due and payable, and collect such balance in any manner not inconsistent with applicable law;
13.3.3. terminate this Lease;
13.3.4. relet any or all of the Premises for the Tenant's account for any or all of the remainder of the Term as hereinabove defined, or for a period exceeding such remainder, in which event the Tenant shall pay to the Landlord, at the times and in the manner specified by the provisions of Section 2, the Base Rent and any Additional Rent accruing during such remainder, less any monies received by the Landlord, with respect to such remainder, from such reletting, as well as the cost to the Landlord of any/25// attorneys' fees or of any repairs or other action (including those taken in exercising the Landlord's rights under any provision of this Lease) taken by the Landlord on account of such Event of Default;
13.3.5. cure such Event of Default in any other manner (after giving the Tenant written notice of the Landlord's intention to do so except as provided in paragraph 13.2.3), in which event the Tenant shall reimburse the Landlord for all expenses incurred by the Landlord in doing so, plus interest thereon at the lesser of the rate of/26// per annum or the highest rate then permitted on account thereof by applicable law, which expenses and interest shall be Additional Rent and shall be payable by the Tenant immediately on demand therefor by the Landlord; and/or
13.3.6. pursue any combination of such remedies and/or any other remedy available to the Landlord on account of such Event of Default under applicable law.
13.4. NO WAIVER. No action taken by the Landlord under the provisions of this Section shall operate as a waiver of any right which the Landlord would otherwise have against the Tenant for the Rent hereby reserved or otherwise, and the Tenant shall remain responsible to the Landlord for any loss and/or damage suffered by the Landlord by reason of any Event of Default.
13.5. DEFAULT BY LANDLORD. In the event of any default by Landlord,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Tenant's exclusive remedy shall be an action for actual direct damages (Tenant hereby waiving the benefit of any laws granting it a lien upon the property of Landlord and/or upon rent due Landlord), but prior to any such action Tenant will give Landlord written notice specifying such default with particularity, and Landlord shall thereupon have thirty (30) days in which to cure any such default. Unless and until Landlord fails to so cure any default after such notice, Tenant shall not have any remedy or cause of
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/25// reasonable
/26// twelve percent (12%)
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action by reason thereof. All obligations of Landlord hereunder will be construed as covenants, not conditions, and all such obligations will be binding upon Landlord only during the period of its possession of the Premises and not thereafter. The term "Landlord" shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all covenants and obligations of the Landlord thereafter accruing, but such covenants and obligations shall be binding during the lease term upon each new owner for the duration of such owner's ownership. Notwithstanding any other provision hereof, Landlord shall not have any personal liability hereunder. In the event of any breach or default by Landlord in any term or provision of this Lease, Tenant agrees to look solely to the equity or interest then owned by Landlord in the Property, however, in no event, shall any deficiency judgment or any money judgment of any kind be sought or obtained against any Landlord.
SECTION 14. ESTOPPEL CERTIFICATE.
The Tenant shall from time to time, within five (5) days after being requested to do so by the Landlord or any Mortgagee, execute, enseal, acknowledge and deliver to the Landlord (or, at the Landlord's request, to any existing or prospective purchaser, transferee, assignee or Mortgagee of any or all of the Premises, the Property, any interest therein or any of the Landlord's rights under this Lease) an instrument in recordable form,
14.1. certifying (a) that this Lease is unmodified and in full force and effect (or, if there has been any modification thereof, that it is in full force and effect as so modified, stating therein the nature of such modification); (b) as to the dates to which the Base Rent and any Additional Rent and other charges arising hereunder have been paid; (c) as to the amount of any prepaid Rent or any credit due to the Tenant hereunder; (d) that the Tenant has accepted possession of the Premises, and the date on which the Term commenced; (e) as to whether, to the best knowledge, information and belief of the signer of such certificate, the Landlord or the Tenant is then in default in performing any of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document its obligations hereunder (and, if so, specifying the nature of each such default); and (f) as to any other fact or condition reasonably requested by the Landlord or such other addressee; and
14.2. acknowledging and agreeing that any statement contained in such certificate may be relied upon by the Landlord and any such other addressee.
14.3 In the event that Tenant fails to deliver in a timely manner the estoppel certificate described in Section 14, Landlord may complete such a certificate on behalf of Tenant, which certificate shall be binding against Tenant as if Tenant itself signed such certificate. For such purpose, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in- fact (which appointment shall be deemed coupled with an interest) for and in its name to prepare and sign on Tenant's behalf such an estoppel certificate, Tenant hereby ratifying and confirming all the said attorney shall lawfully do or choose to do or be done by virture hereof, it being understood and agreed that the aforesaid provisions impose no burden or obligation on the Landlord to do or perform any act whatsoever. After said estoppel certificate has been prepared by Landlord, Landlord shall provide Tenant a copy thereof. Unless Tenant modifies such certificate as may be appropriate to make the certificate fully accurate, and signs and returns to Landlord the certificate within three
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(3) days after receipt from Landlord, Landlord shall be entitled and authorized to sign such estoppel certificate and deliver to any Mortgagee or other person such estoppel certificate in the name and on behalf of Tenant.
SECTION 15. QUIET ENJOYMENT.
The Landlord hereby covenants that the Tenant, on paying the Rent and performing the covenants set forth herein, shall peaceably and quietly hold and enjoy, throughout the Term, (a) the Premises, and (b) such rights as the Tenant may hold hereunder with respect to the remainder of the Property.
SECTION 16. NOTICES.
Any notice, demand, consent, approval, request or other communication or document to be provided hereunder to a party hereto shall be (a) given in writing, and (b) deemed to have been given (i) forty-eight (48) hours after being sent as certified or registered mail in the United States mails, postage prepaid, return receipt requested, upon its hand delivery to such party, addressed as follows:
IF TO LANDLORD: Cornerstone Real Estate Advisers, Inc. c/o Cambridge Asset Advisors Limited Partnership 560 Herndon Parkway, Suite 210 Herndon, Virginia 20170
IF TO TENANT: Pulsar Data Systems, Inc.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4390 Parliament Place, Suite R Lanham, Maryland 20720
Each party may change its notice address by giving written notice of such change to the other party in accordance with the terms of this Section 16.
SECTION 17. LANDLORD'S LIEN./27//
[Deleted]
SECTION 18. GENERAL.
18.1. EFFECTIVENESS. This Lease shall become effective upon and only upon its execution by
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/27// Notwithstanding anything contained herein to the contrary, Landlord agrees to forgive its lien on any furniture, fixture or equipment located in the Premises, but does not waive any of its rights and or remedies granted under the Uniform Commercial Code or any statutory lien for Rent in Landlord's favor.
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each party hereto./28//
18.2. COMPLETE UNDERSTANDING. This Lease represents the complete understanding between the parties hereto as to the subject matter hereof, and supersedes all prior written or oral negotiations, representations, warranties, statements or agreements between the parties hereto as to the same.
18.3. AMENDMENT. This Lease may be amended by and only by an instrument executed and delivered by each party hereto.
18.4. APPLICABLE LAW. This Lease shall be given effect and construed by application of the laws of Maryland, and any action or proceeding arising hereunder shall be brought in the Circuit Court for Prince Georges County, Maryland, provided, that if such action or proceeding arises under the Constitution, laws or treaties of the United States of America, or if there is a diversity of citizenship between the parties thereto so that it is to be brought in a United States District Court, it shall be brought in the United States District Court for the appropriate District in Maryland.
18.5. WAIVER. The Landlord shall not be deemed to have waived the exercise of any right which it holds hereunder unless such waiver is made expressly and in writing (and no delay or omission by the Landlord in exercising any such right shall be deemed to be a waiver of its future exercise). No such waiver as to any instance involving the exercise of any such right shall be deemed a waiver as to any other such instance, or any other such right.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 18.6. TIME OF ESSENCE. Time shall be of the essence of this Lease.
18.7. HEADINGS. The headings of the Sections, subsections, paragraphs and subparagraphs hereof are provided herein for and only for convenience of reference, and shall not be considered in construing their contents.
18.8. CONSTRUCTION. As used herein,
18.8.1. the term "person" means a natural person, a trustee, a corporation, a partnership and any other form of legal entity; and
18.8.2. all references made (a) in the neuter, masculine or feminine gender shall be deemed to have been made in all such genders, (b) in the singular or plural number shall be deemed to have been made, respectively, in the plural or singular number as well, and (c) to any Section, subsection, paragraph or subparagraph shall, unless therein expressly indicated to the contrary, be deemed to have been made to such Section, subsection, paragraph or subparagraph of this Lease.
18.9. EXHIBITS. Each writing referred to herein as being attached hereto as an exhibit or otherwise designated herein as an exhibit hereto is hereby made a part hereof.
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/28// and delivery by Landlord to Tenant
-26-
18.10. SEVERABILITY. No determination by any court, governmental body or otherwise that any provision of this Lease or any amendment hereof is invalid or unenforceable in any instance shall affect the validity or enforceability of (a) any other such provision, or (b) such provision in any circumstance not controlled by such determination. Each such provision shall be valid and enforceable to the fullest extent allowed by, and shall be construed wherever possible as being consistent with, applicable law.
18.11. DEFINITION OF THE "LANDLORD".
18.11.1. As used herein, the term the "Landlord" means the person hereinabove named as such, and its heirs, personal representatives, successors and assigns (each of whom shall have the same rights, remedies, powers, authorities and privileges as it would have had, had it originally signed this lease as the Landlord).
18.11.2. No person holding the Landlord's interest hereunder (whether or not such person is named as the "Landlord" herein) shall have any liability hereunder after such person ceases to hold such interest, except for any such liability accruing while such person holds such interest.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 18.11.3. Neither the Landlord nor any principal of the Landlord, whether disclosed or undisclosed, shall have any personal liability under any provision of this Lease.
18.12. DEFINITION OF THE "TENANT". As used herein, the term the "Tenant" means each person hereinabove named as such and such person's heirs, personal representatives, successors and assigns, each of whom shall have the same obligations, liabilities, rights and privileges as it would have possessed had it originally executed this Lease as the Tenant; provided, that no such right or privilege shall inure to the benefit of any assignee of the Tenant, immediate or remote, unless the assignment to such assignee is made in accordance with the provisions of Section 10. Whenever two or more persons constitute the Tenant, all such persons shall be jointly and severally liable for performing the Tenant's obligations hereunder.
18.13. COMMISSIONS. Each party hereto hereby represents and warrants to the other that, in connection with the leasing of the Premises hereunder, the party so representing and warranting has not dealt with any real estate broker, agent or finder, other than Scheer Partners as Tenant's Agent and Cambridge Property Group Limited Partnership as Landlords Agent and there is no other commission, charge or other compensation due on account thereof Each party hereto shall indemnify and hold harmless the other against and from any inaccuracy in such party's representation.
18.14. RECORDATION. This Lease may not be recorded among the Land Records of the said County or among any other public records, without the Landlord's prior express, written consent thereto, and any attempt by the Tenant to do so without having obtained the Landlord's consent thereto shall constitute an Event of Default hereunder. If this Lease is recorded by either party hereto, such party shall bear the full expense of any transfer, documentary stamp or other tax, and any recording fee, assessed in connection with such recordation; provided, that if under applicable law the recordation of this Lease hereafter becomes necessary in order for this Lease to be or remain
-27- effective, the Tenant shall bear the full expense of any and all such taxes and fees incurred in connection therewith.
18.15. APPROVAL BY MORTGAGEES. Anything contained in the provisions of this Lease to the contrary notwithstanding, the Landlord shall be entitled at any time hereafter but before the Landlord delivers possession of the Premises to the Tenant hereunder, to terminate this Lease by giving written notice thereof to the Tenant, if any Mortgagee fails to approve this Lease for purposes of the provisions of its Mortgage, and in the manner set forth therein.
18.16 WAIVER OF TRIAL BY JURY. The Tenant hereby waives trial by jury in any action or proceeding to which the Tenant and the Landlord may be parties, arising out of or in any way pertaining to (a) this Lease, or (b) the Property.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document It is agreed and understood that this waiver constitutes a waiver of trial by jury of all claims against all parties to such actions or proceedings, including claims against parties who are not parties to this Lease.
This waiver is knowingly, willingly and voluntarily made by the Tenant, and the Tenant hereby represents that no representations of fact or opinion have been made by any individual to induce this waiver of trial by jury or to in any way modify or nullify its effect. The Tenant further represents that it has been represented in the signing of this Lease and in the making of this waiver by independent legal counsel, selected of its own free will, and that it has had the opportunity to discuss this waiver with counsel.
18.17. FINANCIAL INFORMATION.
18.18. AUTHORITY.
By signing below, the undersigned individuals represent and warrant that they have all requisite authority to sign this Lease Agreement and to bind the entity on behalf of which they sign this Lease.
IN WITNESS WHEREOF, each party hereto has executed and ensealed this Lease or caused it to be executed and ensealed on its behalf by its duly authorized representatives, the day and year first above written.
WITNESS: LANDLORD: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
/s/ By: /S/ ROBERT R. VILLENEUVE ------Mr. Robert R. Villeneuve Vice President
Date: 8/11/98 ------
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WITNESS: TENANT: PULSAR DATA SYSTEMS, INC.
/s/ By: /S/ DARYL B. DAVIS ------
Name: Daryl B. Davis ------
Title: V. P. Ops. ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Date: 8/10/98 ------
-29-
AGREEMENT OF LEASE by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY and
PULSAR DATA SYSTEMS, INC.
EXHIBIT A
PREMISES
The Premises consists of approximately 12,790 rentable square feet in 4390 Parliament Place, a 57,089 square foot, office/flex project located at 4390 Parliament Place, Lanham, Prince George's County, Maryland; to be located in the approximate location shown on the plan attached hereto as Exhibit A-1.
-30-
AGREEMENT OF LEASE by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT A-1
SITE PLAN
[SITE PLAN]
-31-
AGREEMENT OF LEASE by and between
Massachusetts Mutual Life Insurance Company
and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Pulsar Data Systems, Inc.
EXHIBIT B
TENANT IMPROVEMENTS
[DELETED]
-32-
AGREEMENT OF LEASE by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT B-1
SPACE PLAN
-33-
AGREEMENT OF LEASE by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT C
CURRENT RULES AND REGULATIONS
1. The sidewalks, lobbies, passages, elevators and stairways shall not be obstructed by the Tenant and used by the Tenant for any purposes other than ingress and egress from and to the Tenant's offices. The Landlord shall in all cases retain the right to control or prevent access thereto by any person whose presence, in the Landlord's judgment, would be prejudicial to the safety, peace, character or reputation of the Building or of any tenant of the Property.
2. The toilet rooms, water closets, sinks, faucets, plumbing and other service
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document apparatus of any kind shall not be used by the Tenant for any purpose other than those for which they were installed, and no sweepings, rubbish, rags, ashes, chemicals or other refuse or injurious substances shall be placed therein or used in connection therewith by the Tenant, or left by the Tenant in the lobbies, passages, elevators or stairways of the Building.
3. No skylight, window, door or transom of the Building shall be covered or obstructed by the Tenant, and no window shade, blind, curtain, screen, storm window, awning or other material shall be installed or placed on any window or in any window space, except as approved in writing by the Landlord. If the Landlord has installed or hereafter installs any shade, blind or curtain in the Premises, the Tenant shall not remove it without first obtaining the Landlord's written consent thereto.
4. No sign, lettering, insignia, advertisement, notice or other thing shall be inscribed, painted, installed, erected or placed in any portion of the Premises which may be seen from outside the Building, or on any window, window space or other part of the exterior or interior of the Building, unless first approved in writing by the Landlord. Names on suite entrances shall be provided by and only by the Landlord and at the Tenant's expense, using in each instance lettering of a design and in a form consistent with the other lettering in the Building, and first approved in writing by the Landlord. The Tenant shall/will not erect any stand, booth or showcase or other article or matter in or upon the Premises and/or the Building without first obtaining the Landlord's written consent thereto.
5. The Tenant shall not place any additional lock or security devices upon any door within the
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EXHIBIT C CURRENT RULES AND REGULATIONS (CONTINUED)
Premises or elsewhere upon the Property without Landlord's consent, and shall surrender all keys for all such locks at the end of the Term. The Landlord shall provide the Tenant with one set of keys to the Premises when the Tenant assumes possession thereof
6. The delivery of towels, ice, water, food, beverages, newspaper and other supplies, equipment and furniture will be permitted only under the Landlord's direction and control.
7. The Tenant shall not do or permit to be done anything which obstructs or interferes with the rights of any other tenant of the Property. The Tenant shall not keep anywhere within the Property any matter having an offensive odor, or any kerosene, gasoline, benzine, camphene, fuel or other explosive or highly flammable material. No bird, fish or other animal shall be brought into or kept in or about the Premises.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 8. The Tenant shall keep the Premises in a good state of preservation and cleanliness while in possession of the Premises.
9. If the Tenant desires to install signalling, telegraphic, telephonic, protective alarm or other wires, apparatus or devices within the Premises, the Landlord shall direct where and how they are to be installed and, except as so directed, no installation, boring or cutting shall be permitted. The Landlord shall have the right (a) to prevent or interrupt the transmission of excessive, dangerous or annoying current of electricity or otherwise into or through the Building or the Premises, (b) to require the changing of wiring connections or layout at the Tenant's expense, to the extent that the Landlord may deem necessary, (c) to require compliance with such reasonable rules as the Landlord may establish relating thereto, and (d) in the event of noncompliance with such requirements or rules, immediately to cut wiring or do whatever else it considers necessary to remove the danger, annoyance or electrical interference with apparatus in any part of the Building. Each wire installed by the Tenant must be clearly tagged at each distributing board and junction box and elsewhere where required by Landlord, with the number of the office to which such wire leads and the purpose for which it is used, together with the name of the tenant or other concern, if any, operating or using it.
10. No furniture, package, equipment, supplies or merchandise may be received in the Building, or carried up or down in the elevators or stairways, except during such hours as are designated for such purpose by the Landlord, and only after Tenant gives notice thereof to the Landlord. The Landlord shall have the exclusive right to prescribe the method and manner in which any of the same is brought into or taken out of the Building, and the right to exclude from the Building any heavy furniture, safe or other article which may create a hazard and to require it to be located at a designated place in the Premises. The Tenant shall not place any weight anywhere beyond the safe carrying capacity of the Building. The cost of repairing any damage to the Building or any other part of the Property caused by taking any of the same in or out of the Premises, or any damage caused while it is in the Premises or the
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EXHIBIT C CURRENT RULES AND REGULATIONS (CONTINUED)
rest of the Building, shall be borne by the Tenant.
11. Without the Landlord's prior written consent, (a) nothing shall be fastened to (and no hole shall be drilled, or nail or screw driven into) any wall or partition, (b) no wall, or partition shall be painted, papered or otherwise covered or moved in any way or marked or broken, (c) no connection shall be made to any electrical wire for running any fan, motor or other apparatus, device or equipment, (d) no machinery of any kind other than customary small business machinery shall be allowed in the Premises, (e) no
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document switchboard or telephone wiring or equipment shall be placed anywhere other than where designated by the Landlord, and (f) no mechanic shall be allowed to work in or about the Building other than one employed by the Landlord, unless approved in writing by Landlord.
12. The Tenant shall have access to the Premises at all reasonable times. The Landlord shall in no event be responsible for admitting or excluding any person from the Premises. In case of invasion, hostile attack, insurrection, mob violence, riot, public excitement or other commotion, explosion, fire or any casualty, the Landlord shall have the right to bar or limit access to the Building to protect the safety of occupants of the Property, or any property within the Property.
13. The Landlord shall have the right to rescind, suspend or modify the Rules and Regulations and to promulgate such other Rules or Regulations as, in the Landlord's reasonable judgment, are from time to time needed for the safety, care, maintenance, operation and cleanliness of the Building, or for the preservation of good order therein. Upon the Tenant's having been given notice of the taking of any such action, the Rules and Regulations as so rescinded, suspended, modified or promulgated shall have the same force and effect as if in effect at the time at which the Tenant's lease was entered into (except that nothing in the Rules and Regulations shall be deemed in any way to alter or impair any provision of such lease).
14. The use of any room within the Building as sleeping quarters is strictly prohibited at all times.
15. The Tenant shall keep the windows and doors of the Premises (including those opening on corridors and all doors between rooms entitled to receive heating or air conditioning service and rooms not entitled to receive such service), closed while the heating or air conditioning system is operating, in order to minimize the energy used by, and to conserve the effectiveness of, such systems. The Tenant shall comply with all reasonable Rules and Regulations from time to time promulgated by the Landlord with respect to such systems or their use.
16. Nothing in these Rules and Regulations shall give any Tenant any right or claim against the Landlord or any other person if the Landlord does not enforce any of them against any other
-36-
EXHIBIT C CURRENT RULES AND REGULATIONS (CONTINUED)
tenant or person (whether or not the Landlord has the right to enforce them against such tenant or person), and no such nonenforcement with respect to any tenant shall constitute a waiver of the right to enforce them as to the Tenant or any other tenant or person.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document -37-
AGREEMENT OF LEASE by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT D
BASE RENT
-38-
AGREEMENT OF LEASE by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT E
LEASE ADDENDUMS
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1. Option to Terminate: Provided Tenant is not then in default under the terms of this Lease, Tenant shall have the one-time right to terminate this Lease as of the end of the thirty-sixth (36th) month of the Lease Term. Tenant must provide Landlord at least one hundred eighty (180) days prior written notice (i.e. 180 days prior to the end of the 36th month of the Lease Term) of its election to exercise this option to terminate. If Tenant fails to provide Landlord with such written notice on or before such one hundred eighty (180) day period, Tenant's option to terminate shall become null and void and Tenant shall have no further option(s) to terminate. In connection with said termination and as liquidated damages to compensate Landlord for the damage it will incur in connection with an early termination, Tenant shall pay a fee to Landlord equal to all unamortized tenant improvement costs and leasing commissions amortized over sixty (60) months at a per annum rate of ten percent (10%) per annum plus three (3) months Base Rent at the then current rates. The parties acknowledge that it would be difficult to calculate Landlord's damages in the event of an early termination and that the above sum is a reasonable estimate of such damages. Tenant shall pay such sum at the time of its giving the foregoing notice or such notice shall be null and void and Tenant's option to terminate shall thereupon be null and void. In addition, the parties shall execute a termination agreement in connection with such early termination.
2. Right of First Offer: As long as Tenant has not been in default during the Term of the Lease and is not in default under the Lease at the time of its exercise of this right, and so long as this right is exercised in connection with an expansion of Tenant's Premises and for no other purpose, and subject to the prior rights of any other tenant in the Building, Landlord hereby grants to Tenant a one-time right of first offer on the terms and conditions contained in this paragraph to lease the 6,717 square feet in Suite P when it becomes available and is not subject to the rights of any other tenant (the "Offer Space"). The rent for such Space shall be the same rate Tenant is then paying for the Premises, as escalated. Such lease shall be coterminous with the lease for the existing Premises and if such Term is then less than three (3) Lease Years, the Term for the existing Premises and the Offer Space shall be extended so that it will expire at least three (3) Lease Years from the commencement date of Tenant's lease of the Offer Space. Landlord shall also provide Tenant with a tenant improvement allowance in the amount equal to the proportionate amount with respect to the Lease Term remaining for improvements to the Offer Space. In the event the Offer Space becomes available for lease during the Term, Landlord shall give notice thereof to Tenant which notice shall
-39- contain the foregoing terms to lease the Offer Space. Within five (5) business days of such notice, time being of the essence, Tenant shall give Landlord notice that it either does or does not wish to lease the Offer Space or if Tenant fails to give Landlord notice of its desires respecting the Offer Space within the foregoing required five (5) business day period, then Landlord shall be entitled to proceed to market and/or lease the Offer Space to a third party free and clear of Tenant's right to first offer and such right shall be deemed
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document terminated in all respects and Tenant shall have no further rights of first offer.
In the event Tenant gives Landlord a notice as required in the preceding paragraph that it wishes to lease the Offer Space, then Landlord and Tenant shall have twenty (20) days from the date of the notice within which to amend this Lease by adding the Offer Space on the terms and conditions contained in Landlord's notice. In the event Landlord and Tenant fail to sign such amendment to this Lease, using good faith efforts, within said twenty (20) day period, time being of the essence, then Landlord shall be entitled to proceed to market and/or lease the Offer Space to a third party free
-40-
------COMPARISON OF FOOTNOTES------
-FOOTNOTE 1- any extension thereof
-FOOTNOTE 2- hundred fifty percent (150%) for the first three (3) months and two hundred percent (200%)
-FOOTNOTE 3- no event shall Tenant's annual increase in controllable Annual Operating Costs (not including, real estate taxes, insurance, utilities and snow removal) exceed six percent (6%) of the Tenant's previous years costs.
-FOOTNOTE 4- thirty (30) days
-FOOTNOTE 5- Blank Footnote
-FOOTNOTE 6- which approval shall not be unreasonably withheld, conditioned or delayed
-FOOTNOTE 7- to Audit:
(a) Selection of Accountants: If Tenant disputes the amount of an adjustment or the proposed estimated increase or decrease in Taxes or Annual Operating Costs, Tenant shall give Landlord written notice of such dispute within thirty (30) days after Landlord advises Tenant of such adjustment or proposed increase or decrease. Tenant's failure to give such notice shall waive its right to dispute the amounts so determined. Tenant shall also not be entitled to dispute the foregoing amounts if Tenant is then in default hereunder. If Tenant is entitled to and timely objects, Tenant shall have the right to engage its own accountants ("Tenants Accountants") for the purposes of verifying the accuracy
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of the statement in dispute, or the reasonableness of the adjustment or estimated increase or decrease. If Tenant's Accountants determine that an error has been made, Landlord and Tenant's Accountants shall endeavor to agree upon the matter. If they cannot agree within twenty (20) days from the date Tenant's Accountants commence reviewing Landlord's records, Landlord and Tenant's Accountants shall jointly select an independent certified public accounting firm (the "Independent Accountant") which firm shall conclusively determine whether the adjustment or estimated increase or decreases is reasonable, and if not, what amount is reasonable. Both parties shall be bound by such determination. If Tenant's Accountants do not
-41- participate in choosing the Independent Accountant within 20 days from the date Landlord and Tenant's Accountant's determine that they cannot agree as to whether or not an error has been made, then Landlord's determination of the adjustment or estimated increase or decrease shall be conclusively determined to be reasonable and Tenant shall be bound hereby.
(b) Payment of Costs: All costs incurred by Tenant in obtaining Tenant's Accountants and the cost of the Independent Accountant shall be paid by Tenant unless Tenant's Accountants disclose an error, acknowledge by Landlord (or found to have conclusively occurred by the Independent Accountant), of more than ten percent (10%) in the computation of the total amount of Taxes or Annual Operating Costs as set forth in the statement submitted by Landlord with respect to the matter in dispute; in which event Landlord shall pay the reasonable costs incurred by Tenant in obtaining such audits. No subtenant shall have the right to conduct an audit and no assignee shall conduct an audit for any period during which such assignee was not in possession of the Premises.
(c) Continuation of Payments Pending Determination: Tenant shall continue to timely pay Landlord the amount of the prior year's adjustment and adjusted Additional Rent determined to be incorrect as aforesaid until the parties have concurred as to the appropriate adjustment or have deemed to be bound by the determination of the Independent Accountant in accordance with the preceding terms. Landlord's delay in submitting any statement contemplated herein for any Lease Year shall not affect the provisions of this Paragraph, nor constitute a waiver of Landlord's rights as set forth herein for said Lease Year or any subsequent Lease Years during the Lease Term or any extensions thereof.
-FOOTNOTE 9- within thirty (30) days after Tenant's receipt of invoice.
-FOOTNOTE 10- percent (12%)
-FOOTNOTE 11- anything contained herein to the contrary provided Tenant hasn't been in default, Landlord will refund one month of the security deposit in the amount of eight thousand seven hundred thirty-nine and 83/100 ($8,739.83) at the end of
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document the first (1st) Lease Year.
-FOOTNOTE 12- (30) days
-FOOTNOTE 13- shall provide a turn key buildout based upon the final approved space plan dated July 24,1998 and attached hereto in Exhibit B-1. The cost of any additional improvements or services incurred due to Tenant's modification of the final approved space plan shall be promptly paid directly by Tenant to Landlord upon written request by Landlord (to include invoice with back-up), and failure to pay such sum in accordance with the schedule below shall constitute an Event of Default under the Lease. Landlord's contractor shall perform all work to be done within the Premises, with the exception of Tenant's telephone and data cabling.
-42-
In the event the cost of the improvement exceeds the Allowance, Tenant shall repay such costs in accordance with the following schedule; (a) seventy five percent (75%) upon requisition of the improvements and (b) twenty five percent (25%) upon the substantial completion of the improvements.
-FOOTNOTE 14- its sole cost and expense
-FOOTNOTE 15- during the last six (6) months of the Term)
-FOOTNOTE 16- hundred eighty (180)
-FOOTNOTE 17- hundred eighty (180)
-FOOTNOTE 18- not be unreasonably withheld, conditioned or delayed, so long as such transferee meets Landlord's reasonable criteria, which criteria are as follows: a. The financial strength of the proposed assignee or subtenant, both in terms of net worth and in terms of reasonably anticipated cash flow over the Lease term, is not materially less than Tenant's financial strength at the time this Lease was signed or at the time of such assignment or sublease, whichever is greater. b. The proposed assignee or subtenant will not burden the Premises and/or Common Areas to an extent substantially disproportionate to typical tenants of the Building, whether through disproportionate demand for landlord services or utilities, disproportionate bearing weights on floor areas, disproportionate parking requirements, deterioration of floors or other elements of the Building,
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document or otherwise. c. The proposed assignee or subtenant does not intend to make substantial alterations to the Premises which would, in Landlord's reasonable judgement, result in a material net decrease in the value of the Premises as improved. d. The proposed assignee's or subtenant's use of the Premises will, in Landlord's sole judgment, be compatible with the uses of the other tenants in the Building or will be appropriate for a Class A office building. e. Any other basis on which Landlord can reasonably refuse to withhold its consent to the proposed assignment or sublease, including any failure of the proposed assignee or subtenant to meet any of the reasonable criteria of Landlord that Tenant was required to meet prior to the execution of this Lease.
-43-
-FOOTNOTE 19- percent (50%) of
-FOOTNOTE 20- for the Transfers to subsidiaries or other affiliates of Tenant,
-FOOTNOTE 21- Blank Footnote
-FOOTNOTE 22- (30)
-FOOTNOTE 23- the event Tenant should cease to continue to operate its business at the Premises for a period of forty-five (45) consecutive days for any reason other than Tenant's alterations, casualty or other reason beyond Tenant's reasonable control, Landlord shall have the right at any time thereafter to terminate the Lease and recapture the Premises upon thirty (30) days prior written notice to Tenant. Landlord shall also have the option to recapture the Premises upon thirty (30) days prior written notice to Tenant without terminating the Lease. In such event, Tenant shall remain liable for the Rent until such time as Landlord leases the Premises to another party.
-FOOTNOTE 24- written notice is received; however, Landlord shall only be obligated to provide written notice to Tenant twice in each Lease Year; thereafter, no notice shall be due from Landlord to Tenant and Tenant shall be in default if it fails to pay such amounts when due.
-FOOTNOTE 25- Blank Footnote
-FOOTNOTE 26-
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document percent (12%)
-FOOTNOTE 27- anything contained herein to the contrary, Landlord agrees to forgive its lien on any furniture, fixture or equipment located in the Premises, but does not waive any of its rights and or remedies granted under the Uniform Commercial Code or any statutory lien for Rent in Landlord's favor.
-FOOTNOTE 28- delivery by Landlord to Tenant
------COMPARISON OF FOOTNOTES------
-HEADER 1------EXHIBIT C ------
-44-
CURRENT RULES AND REGULATIONS (CONTINUED) ------
-45-
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.29
BUSINESS LOAN AGREEMENT
Borrower: Litronic Industries, Inc. Lender: BYL BANK GROUP 2030 Main Street #1250 Costa Mesa Office Irvine, CA 92614 1700 Adams Ave. Ste. 100 Costa Mesa, CA 92626
======
THIS BUSINESS LOAN AGREEMENT between Litronic Industries, Inc. ("Borrower") and BYL BANK GROUP ("Lender") is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of September 29, 1998, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
BORROWER. The word "Borrower" means Litronic Industries, Inc.. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of
BUSINESS LOAN AGREEMENT Page 2 (Continued) ======
Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor"means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means BYL BANK GROUP, its successors and assigns.
BUSINESS LOAN AGREEMENT Page 3 (Continued) ======
LOAN. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's promissory note or notes, in any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security interests securing indebtedness owned by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and security obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document BUSINESS LOAN AGREEMENT Page 4 (Continued) ======
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1996 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note; (b) Security Agreements granting to Lender security interests in the Collateral; (c) Financing Statements perfecting Lender's Security Interests; (d) evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the state of Borrower's incorporation and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states
BUSINESS LOAN AGREEMENT Page 5 (Continued) ======
in which the failure to so qualify would have a material adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled tin Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The term "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et. seq., or other applicable state or Federal laws, rules or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal,
BUSINESS LOAN AGREEMENT Page 6 (Continued) ======
release, or threatened release of any hazardous waste or substance by or on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the properties. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
BUSINESS LOAN AGREEMENT Page 7 (Continued) ======
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated plan or initiated steps to do so, (iii) no steps have bene taken to terminate any such plan, and (iv) there are not unfunded liabilities other than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 2030 Main Street #1250, Irvine, CA 92614. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral.
YEAR 2000. Borrower warrants and represents that all software utilized in the conduct of Borrower's business will have appropriate capabilities and compatibility for operation to handle calendar dates falling on or after January 1, 2000, and all information pertaining to such calendar dates, in the same manner and with the same functionality as the software does respecting calendar dates falling on or before December 31, 1999. Further, Borrower warrants and represents that the data-related user interface functions, data-fields, and data-related program instructions and functions of the software include the indication of the century.
INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be
BUSINESS LOAN AGREEMENT Page 8 (Continued) ======
incomplete by omitting to state any material fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide lender with such loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including
BUSINESS LOAN AGREEMENT Page 9 (Continued) ======
without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the
BUSINESS LOAN AGREEMENT Page 10 (Continued) ======
American With Disabilities Act and will all minimum funding standards and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document other requirements of ERISA and other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
BUSINESS LOAN AGREEMENT Page 11 (Continued) ======
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1966, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than int he ordinary course of business.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower
BUSINESS LOAN AGREEMENT Page 12 (Continued) ======may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the indebtedness, or by any governmental agency. This includes a garnishment, attachment, or
BUSINESS LOAN AGREEMENT Page 13 (Continued) ======
levy on or of any of Borrower's deposit accounts with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower or Grantor, as the case may be, as to the validity or reasonableness of the claim which is the basis of the creditor or
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document forfeiture proceeding, and if Borrower or Grantor gives Lender written notice of the creditor or forfeiture proceeding and furnishes reserves or a surety bond for the creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the indebtedness. Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in so doing, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired.
EVENTS AFFECTING GUARANTOR. Any of the proceeding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the indebtedness.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.
BUSINESS LOAN AGREEMENT Page 14 (Continued) ======
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate, and, at Lender's option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Orange County, the State of California. This Agreement shall be governed by and construed in accordance with the laws of the State of California.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document purposes only and are not to be used to interpret or define the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the Borrowers signing below is responsible for all obligations of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with
BUSINESS LOAN AGREEMENT Page 15 (Continued) ======
respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation reasonable attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including reasonable attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimille (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable.
BUSINESS LOAN AGREEMENT Page 16 (Continued) ======
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provisions of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender.
BUSINESS LOAN AGREEMENT Page 17 (Continued) ======
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF SEPTEMBER 29, 1998.
BORROWER:
Litronic Industries, Inc.
By: /S/ KRIS SHAH ------Kris Shah, President
LENDER:
BYL BANK GROUP
By: [AUTHORIZED SIGNATORY] ------Authorized Officer
======
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.32
AMENDMENT TO FORBEARANCE AGREEMENT
This AMENDMENT ("Amendment") TO FORBEARANCE AGREEMENT is made as of October 8, 1998 by and between PULSAR DATA SYSTEMS, INCORPORATED ("Pulsar") and IBM CREDIT CORPORATION ("IBM Credit").
RECITALS:
WHEREAS, Pulsar and IBM Credit have entered into that certain Forbearance Agreement dated as of August 31, 1998 (as amended, supplemented or otherwise modified from time to time, the "Agreement") and that certain Inventory And Working Capital Financing Agreement dated as of October 30, 1997 ("IWCF"); and;
WHEREAS, Pulsar has requested that IBM Credit make certain changes its Credit Line and Borrowing Base as more fully set forth on Attachment A as of this date to the IWCF; and
WHEREAS, IBM Credit is willing to consent to the requested changes subject to the conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises set forth herein, and for other good and valuable consideration, the value and sufficiency of which is hereby acknowledged, the parties hereto agree that the Agreement is amended as follows:
SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement.
SECTION 2. AMENDMENTS.
A. The Attachment A to the IWCF is hereby amended as follows:
For the period October 8, 1998 through and including January 6, 1999 the Credit Line shall be $18,000,000.00 and thereafter the Credit Line shall be $15,000,000.00.
B. Section 10(b) of the Agreement is hereby amended by adding to the conclusion thereof the following:
"provided, however that Pulsar demonstrate compliance to the foregoing Financial Covenant on a monthly basis for each calendar month from September 1998 through December 1998 for Pulsar's fiscal year ending December 31, 1998 and for each and every reporting period thereafter."
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Page 1 of 1
SECTION 3. ADDITIONAL REQUIREMENTS.
A. The Agreement is hereby amended by inserting therein the following new section:
"IBM Credit has earned stock representing a four percent (4%) ownership interest in Pulsar (the "IBM Credit Interest") on a fully diluted basis. At the option William W. Davis Sr. in lieu of a distribution of such Pulsar stock to IBM Credit, Pulsar shall pay to IBM Credit the lesser of (i) four percent (4%) of the sale price upon the sale of all or substantially all of Pulsar's asset; or (ii) $650,000.00 or (iii) a pro-rata share of $650,000.00 upon sale of less than all or substantially all of Pulsar's assets. For the purpose of example only should Pulsar sell twenty-five percent (25%) of its assets, pursuant to provision (iii) above, Pulsar would pay IBM Credit $162,500.00, it being an amount equal to twenty-five percent of $650,000.00."
B. IBM Credit's consent to the amendment set forth in Section 2 A of this Amendment shall immediately cease upon the occurrence of an Event of Default and all obligations of Pulsar to IBM Credit under the IWCF, the Agreement and otherwise shall, without notice or demand, become immediately due and payable.
SECTION 4. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the receipt by IBM Credit, on or before the close of business on October 15, 1998, of the following conditions precedent:
A. Copies of all Merrill Lynch Stock Account Statements for those stock accounts assigned to IBM Credit through and including statements for the month of August 1998; and
B. Copies of all payment workout agreement letters with unsecured creditors; and
C. A list of all suppliers currently providing open account terms to Pulsar; and
D. This Amendment, executed and delivered by Pulsar.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Pulsar makes to IBM Credit the following representations and warranties all of which are material and are made to induce IBM Credit to enter into this Amendment.
SECTION 5.1 ACCURACY AND COMPLETENESS OF WARRANTIES AND REPRESENTATIONS. All representations made by Pulsar in the Agreement were true and accurate and complete in every respect as of the date made, and, as amended by this Amendment, all representations made by Pulsar in the Agreement are true, accurate and complete in every material respect as of the date hereof, and do not fail to disclose any material fact necessary to make such warranties and
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document representations not misleading.
Page 2 of 2
SECTION 5.2 VIOLATION OF OTHER AGREEMENTS. The execution and delivery of this Amendment and the performance and observance of the covenants to be performed and observed hereunder do not violate or cause Pulsar not to be in compliance with the terms of any agreement to which Pulsar is a party.
SECTION 5.3 LITIGATION. Except as has been disclosed by Pulsar to IBM Credit in writing, there is no litigation, proceeding, investigation or labor dispute pending or threatened against Pulsar, which if adversely determined, would materially adversely affect Pulsar's ability to perform Pulsar's obligations under the Agreement and the other documents, instruments and agreements executed in connection therewith or pursuant hereto.
SECTION 5.4 ENFORCEABILITY OF AMENDMENT. This Amendment has been duly authorized, executed and delivered by Pulsar and is enforceable against Pulsar in accordance with its terms.
SECTION 6. RAMIFICATION OF AGREEMENT. Except as specifically amended hereby, all of the provisions of the Agreement shall remain unamended and in full force and effect. Pulsar hereby ratifies, confirms and agrees that the Agreement, as amended hereby, represents a valid and enforceable obligation of Pulsar's and is not subject to any claims, offsets or defense.
SECTION 7. GOVERNING LAW. This Amendment shall be governed by and interpreted in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement.
Page 3 of 3
IN WITNESS WHEREOF, this Amendment has been duly executed by the authorized officers of the undersigned as of the day and year first above written.
IBM CREDIT CORPORATION PULSAR DATA SYSTEMS, INCORPORATED
By: /S/ JOHN L. ANDERSON By: /S/ WILLIAM W. DAVIS, SR. ------
Print Name: John L. Anderson Print Name: William W. Davis, Sr. ------
Title: Remarketer Loan Manager Title: President/CEO ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Date: 10/15/98 Date: 10/14/98 ------
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.33
PROMISSORY NOTE
$804,342.08 LANHAM, MARYLAND January 1, 1999
FOR VALUE RECEIVED, DAVIS HOLDING COMPANY, a Delaware corporation, ------(hereinafter referred to as "Borrower") hereby promise to pay to the order of PULSAR DATA SYSTEM, INC., a Delaware corporation, (hereinafter referred to as "Lender") the principal sum of $804,342.08, to be paid monthly on the first day of each month, beginning with April 1, 1999, with interest only at the rate of seven and one-half percent (7 1/2%) per annum, principal due on the sale of the property known as 3039 Peachtree Road, Atlanta, GA. Prepayment may be made in whole or in part without penalty.
If the installments payable monthly are not received by the 15/th/ day of the month in which same are due, the maker shall be liable to the holder for the late payment penalty of 5% of the installment then due, which amount shall be deemed part of the principal balance due.
This Note shall be deemed in default if the installment due under the terms herein is more than THIRTY (30) days past due. The undersigned does hereby authorize and empower any Justice of the Peace, any Clerk, Prothonotary, or Attorney of any Court of Record in the State of Maryland, or elsewhere, without process, to enter judgment on the above Obligation, with legal interest, together with 5% of the amount of the debt and interest as counsel fees, without process against him, his successors or assigns, at the suit of the holder of this Note, its successors or assigns, at any time, with stay of execution until the date of payment; and he does waive the benefit of any and all exemption laws of the State of Maryland, or elsewhere. AND the maker hereby waives demand, protest and notice of nonpayment hereof.
This Agreement supersedes all other agreements or representations and all prior agreements or representations and all prior agreements made by Borrower and Lender. This Agreement constitutes the entire agreement between the parties hereto and the parties are not bound by any agreements, understandings, or conditions otherwise than are expressly set forth and stipulated herein.
These presents shall be binding, both jointly and severally, upon the heirs, executors, administrators, successors and assigns of the undersigned.
WITNESS the execution of this Note effective the day and year aforesaid.
SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF: DAVIS HOLDING COMPANY
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document [AUTHORIZED SIGNATORY] BY: [AUTHORIZED SIGNATORY] ------WITNESS President
ATTEST: /S/ LORNA MARIE MITCHELL ------Secretary
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 10.36
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT ------
This Third Amendment to Loan and Security Agreement (this "Amendment") is made and entered into effective as of March 31, 1999, by and among Litronic Industries, Inc., a California corporation (the "Company"), and Fidelity Funding, Inc., a Texas corporation ("Fidelity").
The Company and Fidelity Funding of California, Inc. ("FFOC") have entered into that certain Loan and Security Agreement (as previously amended or modified, the "Original Agreement"), dated as of June 27, 1996, and FFOC has assigned all of its right, title and interest in, to and under the Agreement to Fidelity. The Original Agreement as amended by this Amendment is referred to herein as the "Agreement." Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Original Agreement. The Company and Fidelity desire to amend the Original Agreement and, in connection therewith, hereby agree as follows:
1. The definition of "TANGIBLE NET WORTH REQUIREMENT" in Section 8.8 of the Original Agreement hereby is amended to read in its entirety as follows:
"TANGIBLE NET WORTH REQUIREMENT" means negative $6,200,000 plus the net proceeds received by the Company from any such sale of its equity securities after the date hereof.
2. The definition of "WORKING CAPITAL REQUIREMENT" in Section 8.10 of the Original agreement hereby is amended to read in its entirety as follows:
"WORKING CAPITAL REQUIREMENT" means negative $1,000,000 plus the net proceeds received by the Company from any sale of its equity securities after the date hereof.
3. Section 8.9 of the Original Agreement hereby is deleted in its entirety and shall be of no further force or effect:
4. A new clause (o) reading in its entirety as follows hereby is added to Section 12 of the Original Agreement.
(o) The Company shall fail to consummate and complete the offering and sale of its equity securities on or prior to May 31, 1999 resulting in net proceeds to the Company of at least $20,000,000.
5. In order to induce Fidelity to enter into this Amendment, the Company represents and warrants to Fidelity that:
(a) The representations and warranties contained in Section 7 of the
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Original Agreement are true and correct at and as of the time of the effectiveness hereof.
(b) The Company is duly authorized to execute, deliver and perform its obligations under this Amendment and is and will continue to be duly authorized to perform its obligations under the Original Agreement as amended hereby. The Company has duly taken all corporate action necessary to authorize the execution and delivery of this Amemdment and to authorize the performance of the obligations of the Company hereunder.
(c) The execution and delivery by the Company of this Amemdment, the performance by the Company of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the articles of incorporation and bylaws of the Company, or of any material agreement, judgment, license, order or permit applicable to or binding upon the Company, or result in the creation of any lien, charge or encumbrance upon any assets or properties of the Company. Except for those which have been duly obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by the Company of this Amendment or to consummate the transactions contemplated hereby.
(d) The Agreement (including this Amendment) has been duly executed and delivered by the Company and is a legal and binding instrument and agreement of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency and similar laws and by general principles of equity.
(e) No Event of Default or any event that, with the giving of notice, the passage of time or both, would constitute an Event of Default has occurred or is continuing.
6. (a) The Agreement is hereby ratified and confirmed in all respects. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Fidelity under the Agreement nor constitute a waiver of any provision thereof.
(b) All representations, warranties, covenants and agreements of the Company herein shall survive the execution and delivery of this Amendment and the performance hereof and shall further survive until the Agreement is terminated.
(c) This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and same Amendment.
(d) The Company shall pay to Fidelity a documentation fee of $1,000 in connection with the execution and delivery thereof.
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2
(e) Fidelity has proposed a $20 million line of credit for the Company, Litronic Industries, Inc. and Pulsar Data Systems, Inc. (collectively, the "Prospects"), pursuant to a proposal letter (the "Letter"), dated March 31, 1999, from Fidelity to the Prospects, a copy of which is attached hereto. If Fidelity finally approves a line of credit for the Prospects on substantially the same terms and conditions outlined in the Letter and the Prospects do not accept and close such line of credit within 60 days after Fidelity's approval thereof, the Company shall pay to Fidelity a fee of $100,000 on such 60/th/ day. The Company may not terminate this Agreement prior to such 60/th/ day without paying such fee unless this Agreement is terminated in connection with the closing with Fidelity of the line of credit outlined in the Letter.
IN WITNESS WHEREOF, the Company and Fidelity have executed this Amendment as of the date first written above.
FIDELITY: THE COMPANY:
FIDELITY FUNDING, INC., LITRONIC INDUSTRIES, INC., a Texas corporation a California corporation
By: /s/ Michael D. Haddad By: /s/ Kris Shah ------Michael D. Haddad Name: KRIS SHAH ------President Title: President ------
3
CONSENT AND AGREEMENT ------
The undersigned hereby consents to the provisions of this Amendment and the transactions contemplated therein and hereby ratifies and confirms the general continuing guaranty and the subordination agreement, each dated as of June 27, 1996, made by him for the benefit of Fidelity relating to the Company, and agrees that his obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect.
/s/ Kris Shah ------Kris Shah
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CONSENTED TO BY:
/s/ Geraldine M. Shah ------Geraldine Shah Spouse of Kris Shah
4
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
(When the Reorganization as described in note 1 of the consolidated financial statements referenced below has been consummated, we will be in a position to provide the following consent)
/s/ KPMG LLP
The Board of Directors Litronic Inc.:
We consent to the use of our report February 26, 1999, related to the consolidated balance sheets of Litronic Inc. and subsidiary as of December 31, 1997 and 1998 and the consolidated statements of operations, shareholders' deficiency and cash flows for each of the years in the three year period ended December 31, 1998 and to the reference to our firm under the headings "Selected Financial Data Litronic" and "Experts" in the prospectus.
Orange County, California April 7, 1999
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 23.2
The Board of Directors Pulsar Data Systems, Inc.
Our report dated March 31, 1999, contains an explanatory paragraph that states that the Company has suffered losses from operations and has a net working capital deficit, which raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty.
We consent to the use of our report included herein and to the reference to our firm under the headings "Selected Financial Data Pulsar" and "Experts" in the prospectus.
/s/ KPMG LLP
McLean, Virginia April 7, 1999
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 23.3
To The Board of Directors Pulsar Data Systems, Inc. Lanham, Maryland
The audits referred to in our report dated April 27, 1998, which contains an explanatory paragraph that states that the Company incurred a loss, has a net capital deficiency and was in violation of certain debt convenants, among other factors, raise substantial doubt about the Company's ability to continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule II, Valuation and Qualifying Accounts and Reserves is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ Keller Brunner & Company, L.L.C.
Bethesda, Maryland April 7, 1999
Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 99.1
CONSENT OF ANTHONY GIRAUDO
I consent to the reference to me as a person to be appointed a Director of Litronic Inc. under the captions "Prospectus Summary," "Management" and "Principal Stockholders" in the Prospectus included in the Registration Statement on Form S-1 of Litronic Inc.
/s/ Anthony Giraudo ------Anthony Giraudo
April 6, 1999 Colorado Springs, Colorado
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